One of the most highly contested areas of Medicare reimbursement is the Medicare Disproportionate Share Hospital (DSH) formula. The Centers for Medicare & Medicaid Services (CMS) released CMS-1498-R on April 28, 2010, taking a firm position on three commonly appealed issues affecting DSH payments and remanding countless appeals back to the Medicare contractors. Each hospital should evaluate this ruling’s impact on its existing DSH appeals and consider how it could affect the DSH amount claimed on the next Medicare cost report.

This ruling affects any open Medicare cost reports and cost reports with a properly pending appeal on the following issues:

SSI Matching Process

CMS has conceded through this ruling (and reaffirmed in the proposed inpatient prospective payment system rule released on May 4, 2010) it has not used the “best available data” to calculate the numerator of the SSI fraction. CMS is careful to state, however, the underlying matching process has been “lawful.”

The numerator of the SSI fraction is the number of inpatient days for individuals entitled to both Medicare Part A and SSI. This number has historically been identified by comparing a unique number in the SSI records (Title II numbers) to the Medicare Provider Analysis and Review (MedPAR) file using the Health Insurance Claim Account Numbers (HICANs).

This ruling and the proposed inpatient prospective payment system (PPS) rule adopt the revised matching process implemented in the Baystate Medical Center v. Leavitt case. Effective October, 1, 2010, the identification of SSI days will include updated and refined SSI eligibility data and Medicare records and include matching by Social Security numbers in addition to HICANs and Title II numbers. CMS expects many public comments in response to the proposed rule and intends to make changes to the matching process if changes are deemed appropriate. Approved changes will be included in the final inpatient PPS rule.

Exhausted Part A Days

Under CMS’ original policy, patients only were included in the numerator of the SSI fraction if the inpatient stay was “covered” under Medicare Part A and entitled to SSI benefits. Effective October 1, 2004, CMS changed its policy to include an inpatient stay in the numerator of the SSI fraction if the patient was “entitled” to Medicare Part A and entitled to SSI benefits, thereby also including patients whose Part A hospital benefits were exhausted. This opened the door for numerous appeals.

Various arguments related to this issue have been raised. Some hospitals have appealed to have exhausted Part A days added back to the SSI fraction prior to October 1, 2004, while others argue the days should be included in the Medicaid fraction. This ruling confirms CMS’ position that exhausted Part A days should be included in the numerator of the SSI fraction and not in the Medicaid fraction.

Labor/Delivery Room Days

Prior to 2009, CMS would include Labor and Delivery Room (LDR) in the total and Medicaid days used in the DSH calculation only if the patients occupied a routine bed prior to occupying an ancillary LDR bed before the census-taking hour. Effective October 1, 2009, (per the FY2010 Final Rule), CMS revised its policy to include the LDR days in the total and Medicaid days regardless of whether the patient had occupied a routine bed prior to occupying an ancillary LDR bed. Hospitals have appealed this issue for many years; some of those appeals have already been resolved.

CMS Proposed Resolution of Appeals

The positions taken by CMS on the above issues will be applied to all properly pending DSH appeals and all open cost reports that have not been finalized through an initial notice of program reimbursement (NPR). For the exhausted Part A days issue, this would only apply to cost reports with discharges prior to October 1, 2004. CMS further states—because the DSH appeals will be resolved and remanded back to the Medicare contractors to recalculate the DSH percentages—existing appeals related to these issues can no longer continue. Any future appeals, such as arguing exhausted Part A days are more appropriate in the Medicaid fraction, could be initiated only after the issuance of initial/revised NPRs, which could delay further DSH appeals for years.

Action Steps for Hospitals

Hospitals should verify their appeal rights have been appropriately preserved on each of these issues and the appeals have followed applicable jurisdictional and procedural requirements. Hospitals then have two options:

1. Patiently wait for the tribunal to approve each qualifying appeal to be remanded to the Medicare contractor
2. Submit a written request to expedite the disposition of appeals to the appropriate appeals tribunal and provide a copy of the written remand to the appropriate Medicare contractor, who will then determine if the appeal is subject to the ruling

While the second option should expedite the processing of the appeal, the hospital will be required to produce the supporting documentation to the Medicare contractor.

Finally, hospitals should consider filing cost reports in accordance with this CMS ruling, proactively including the LDR days in the total and Medicaid days of the Medicaid fraction. Hospitals also could include an estimate of changes to the SSI ratio resulting from the revised matching process and inclusion of exhausted Part A days as a protested item on the cost report to preserve appeal rights moving forward. The inclusion of any of these items should be disclosed in a transmittal letter (with a reference to this CMS ruling) accompanying the Medicare cost report submission to the Medicare contractors.

For more information, contact your BKD advisor.