Under the Social Security Act, Medicaid Disproportionate Share Hospital (DSH) payments to hospitals cannot exceed the uncompensated cost of providing inpatient and outpatient hospital services to Medicaid-eligible and uninsured individuals.
The 2008 DSH final rule required state reports and audits to ensure the appropriate use of DSH payments and compliance with the DSH limit imposed at Section 1923(g) of the Social Security Act. This rule also defined uninsured individuals as those who have no health insurance or other third-party coverage for the services provided. Individuals with insurance coverage, even if they don’t have coverage for the services provided, cannot be counted in the calculation of uncompensated cost for the Medicaid DSH payments. This is applied on an individual basis.
Proposed Rule Broadens the Definition of ‘Uninsured’
The proposed rule, released in the January 18, 2012, Federal Register, broadens the definition of “uninsured” to include the following:
- Services furnished to individuals covered under the Indian Health Service (IHS) are considered covered only to the extent that the services are directly from IHS or when IHS has authorized coverage. Otherwise, these individuals are considered uninsured.
- Services provided to individuals who have reached their lifetime insurance limits or who have exhausted their benefits are considered uninsured.
- Services provided to individuals with health insurance that does not cover a medically necessary service also are considered uninsured.
Bad Debts & Unpaid Coinsurance/Deductibles & Inmates
The Centers for Medicare & Medicaid Services (CMS) clarified that cost associated with bad debts, unpaid coinsurance/deductibles and payor discounts cannot be included in the calculation of the uncompensated care for Medicaid DSH. This is due to the fact that these individuals had a source of third-party coverage for the service—the unpaid amount actually represents uncollected revenues.
In addition, the proposed rule supports previous definitions that inmates are not considered uninsured. Inmates are those in secured custody, and the appropriate federal, state or local law enforcement agency is legally liable for their care.
Effect on Hospitals
CMS did not prepare an analysis as prescribed by various regulations because it does not anticipate the rule change will have a significant financial effect on state Medicaid programs. They indicated the proposed change does not modify the DSH allotment amounts. Finally, CMS indicated the proposed rule may affect the calculation of the hospital-specific DSH limit by increasing the cost provided to uninsured individuals. This may affect the hospital’s DSH Medicaid payment if the hospital has its DSH Medicaid payment limited to the uncompensated care cost.
Please note: CMS is accepting comments on the proposed rule until February 17, 2012. For more on this proposed rule, contact your BKD advisor or Kevin Wellen at kwellen@bkd.com.
