Connecting the Dots on Uncompensated Care Reporting: IPPS Updates

Uncompensated care continues to be a growing risk for hospitals. It also is a growing financial strain. According to the American Hospital Association’s Annual Survey of Hospitals, the cost to U.S. hospitals of bad debt and charity care was $38.3 billion in 2016, an increase of $2.6 billion over the previous year.¹ As an aging population brings more patients into the care system, uncompensated care no doubt will continue to trouble providers, underscoring the importance of proper reporting and reimbursement.

Uncompensated care also is drawing increasing focus from the Centers for Medicare & Medicaid Services (CMS). In August 2018, CMS issued its Medicare inpatient prospective payment system (IPPS) final rule for fiscal year (FY) 2019. In the final rule, CMS estimates that, for FY19, total Medicare disproportionate share hospital (DSH) payments will be $12.36 billion, with approximately $8.27 billion of those payments based on uncompensated care.² That is an increase of $1.5 billion over uncompensated care payments in FY18.3

Although CMS consistently has expressed through its rulemaking process a willingness to work with industry stakeholders to develop clarifications and revisions to Medicare cost report instructions for reporting uncompensated care data on worksheet S-10, such increases in uncompensated care payouts bring greater scrutiny. Considering the CMS final rule, organizations should understand the significant changes related to uncompensated care reporting and seek advice for preparing for a potential audit.

Changes to worksheet S-10, charity care reporting

With the final rule for FY19, CMS announced it intends to further refine its efforts to review Medicare cost report worksheet S-10 data submitted by hospitals. CMS made the announcement based on what it learned from the previous electronic health record (EHR) audits and because of additional reviews of data conducted for the FY19 rulemaking process. In previous IPPS final rules, CMS stated it intended to provide standardized instructions to Medicare administrative contractors (MACs) to guide them in determining when and how often they review a hospital’s worksheet S-10. The 2019 IPPS final rule states that CMS expects to conduct audits in fall of 2018.

While the rulemaking process affords the opportunity for stakeholders to express opinions, the 2019 IPPS final rule has confirmed once again that this process alone does not answer all questions. Regarding the rules for reporting uncompensated care on worksheet S-10, ambiguity remains. To help limit the uncertainty, CMS offers these new developments related to the S-10 audits:

• The focus will be on the FY15 cost reports or those beginning on or after Oct. 1, 2014.
• CMS tasked each MAC with completing or settling 50 audits by Jan. 31, 2019. Presumably, this is so they can incorporate the corresponding Healthcare Cost Report Information System data into the FY20 IPPS rulemaking process.
• CMS continues to issue documentation request letters, with providers allowed two to three weeks to respond.

Many hospitals already have received the three- to four-page request letter, and it is onerous. Significant documentation requirements spelled out in the letter include:

• A copy of the hospital’s charity care policy or financial assistance policy and an explanation of how hospital personnel determine insurance status and charity care write-offs
• Descriptions of the logic and process used when querying hospital records to get a detailed listing of accounts supporting charity care charges on worksheet S-10
• A detailed listing of claimed charges and payments, including demographic and revenue code detail, and an explanation and reconciliation of any variance with reported amounts on worksheet S-10 – with the purpose of the revenue codes possibly being to allow the MAC to identify professional fees so the fee information can be adjusted prior to the sampling process
• A detailed listing of all bad debts for the hospital, including Medicare and non-Medicare, and revenue code detail along with reconciliation from financial accounting records to amounts reported on worksheet S-10

The letter further indicates that the MAC will select samples of charges and payments and bad debts from the aforementioned listings and will request patient documentation. As with EHR audits, the supporting documentation likely will include:

• Charity care applications and supporting documentation such as pay stubs and bank statements that show that the patient qualifies for charity care
• Uniform billing and explanation of benefits materials
• Medicaid remittance advice documentation, if applicable

In the 2019 IPPS final rule, CMS states that, effective for cost reporting periods beginning on or after Oct. 1, 2018, the provider must submit a detailed listing of charity care or uninsured discounts as supporting documentation with its cost report. The listing should contain information such as patient names, dates of service, insurers (if applicable), and the amount of charity care or uninsured discount given. This amount must correspond to the amount claimed in the hospital’s cost report.

In response to comments about use of a standardized format for these listings, CMS agreed that a standardized format should be established and required for the submission of the supporting documentation for charity care or uninsured discounts. According to CMS, a standard format is forthcoming.

In anticipation of audits related to uncompensated care, hospitals should be prepared to share details to support charity care amounts reported on the cost report and be able to reconcile that data with amounts reported on IRS Form 990, Schedule H, and audited financial statements.

Seek advice

As evidenced by the adjustments made in the IPPS final rule for FY19, uncompensated care reporting will continue to be an evolving issue that hospitals will need to follow closely to make sure they are receiving proper reimbursement for services and avoiding risk. Good collaboration among revenue cycle, regulatory reimbursement, patient financial services, finance, and tax areas within an institution will go a long way toward accurate reporting of uncompensated care elements. It also might be beneficial for hospitals to seek assistance from qualified third-party specialists for help with reporting and recordkeeping.