5 Steps for Hospitals to Manage Risk Around Fall 2018 Uncompensated Care CMS Audits

In 2014 under the Affordable Care Act’s assumed Medicaid expansion, CMS began calculating disproportionate-share hospital (DSH) payments based on charity care and bad debt—together known as uncompensated care. DSH payments were previously calculated based on the number of Medicaid, dual-eligible and disabled patients treated. Beginning this fall, CMS will start auditing the uncompensated care data included in worksheet S-10 of a hospital’s cost report. Upon audit, CMS will require hospitals to support uncompensated care amounts with patient-level data.

 

CMS said it would audit the top 1 percent of hospitals with a high ratio of uncompensated care to total operating costs. In its final 2019 acute-care hospital inpatient prospective payment system (IPPS) rule, which dictates the way hospitals are reimbursed based on cost reports three years in arrears, the agency then underlined that its audit protocols are confidential—underlining the importance of hospitals ensuring proper documentation in the face of little guidance.

 

Today’s DSH calculations are based on uncompensated care data from 2015-17, largely before ACA rollbacks took shape. Once the individual mandate penalty ends next year, almost 25 percent of large businesses expect at least some of their workers and families to stop enrollment in coverage, the Kaiser Family Foundation found. As the ACA is rolled back further and the uninsured population grows, hospitals are likely to see their uncompensated care population grow in tandem. Since the rate at which they’re reimbursed for that uncompensated care does not account for ACA changes, however, hospitals’ future revenue is likely to be negatively impacted.

 

Additionally, the percentage of workers with a deductible increased to 85 percent this year, compared to 81 percent in 2017 and 59 percent 10 years ago, according to Modern Healthcare. As the number of consumers facing deductibles—and the amounts of them—grow, it will become increasingly important for hospitals to consider deductibles and co-insurance write-offs to charity in the face of uncompensated care audits.

 

The uncompensated care audits, and the accompanying required patient-level documentation upon audit, come at a time when hospitals already must manage heightened financial risk while maximizing quality outcomes in the process. As care traditionally provided at the hospital moves to outpatient settings and from fee-for-service to value-based reimbursement, hospitals have been forced to transform their business model to revolve around improved outcomes and consumer convenience.

 

At the same time, healthcare entities—hospitals included—are grappling with a new accounting standard, ASC 606, Revenue from Contracts with Customers. The third step of the standard—determining the transaction price—proves especially tricky for an industry transitioning to value-based reimbursement and determining the accuracy of its revenue forecasts in the process.

 

Hospitals are required to report their uncompensated care costs in a section of the Medicare cost report called the S-10 worksheet, which CMS uses to calculate DSH payments.

 

To successfully toe the line between allocating costs within Medicare rules to optimize reimbursement and revenue, and mitigating heightened false claims risk, healthcare organizations should keep the following five-step checklist top of mind.

 

Do you have a charity care policy with defined terms, including what is covered under the policy? Your policy should establish clear, non-discriminatory income levels that constitute charity care, include instructions and required documentation for applying for charity care, and be available in all respective languages of your patient population.

 

Have you implemented the policies and processes—across your entire organization—needed to ensure you’re capturing and accurately recording the level of patient data required to optimize reimbursement and mitigate fraud risk? Because patient-level data is essential to support the uncompensated care amounts in worksheet S-10 upon audit, you must ensure you have a proper information governance framework in place to do so.

 

Have you then made changes to ensure patient-level documentation is happening across your organization? This means recording the patient’s information upon admittance and throughout the entire episode of care—at the front end with your billing department and at the back end with follow-up for qualifications of charity care. It’s also crucial to maintain the documentation provided in each patient’s record so that it’s accurate and easily-accessible come an audit.

 

We will continue this conversation in next month’s publication and share the final 3 steps.