CMS begins new hospital payment model for uncompensated care

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Amy Yu Research Analyst—Health Research Institute, PwC US October 05, 2018

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CMS began its three-year transition to a new payment model for hospital uncompensated care on Monday. It is moving from a model based only on Medicaid, dual-eligible and disabled patient headcount to one based on actual patient care services provided.

In alignment with the 2018 Medicare IPPS final rule, CMS will continue incorporating uncompensated care cost data from worksheet S-10 of the Medicare cost report into the calculation for distributing funding for fiscal year 2019. The calculation has been slightly modified from fiscal year 2018. CMS will use two years of uncompensated care cost data, rather than one year, in combination with one year of low-income insured days data, rather than two years.

CMS distributes funds to Medicare disproportionate share hospitals (DSH) based on their relative shares of uncompensated care nationally. CMS released a hospital inpatient prospective payment system (IPPS) final rule for fiscal year 2019 that includes estimates for total Medicare DSH payments. Almost $8.3 billion of the estimated DSH payments will be distributed based on uncompensated care.

HRI impact analysis

The IPPS final rule is in response to a study conducted by the Government Accountability Office (GAO) in 2016 recommending that CMS improve the alignment of Medicare uncompensated care payments with hospital uncompensated care costs. The GAO study found that uncompensated care payments were largely based on workload rather than actual hospital uncompensated care costs.

With the onset of the ACA exchanges and Medicaid expansion, the number of uninsured persons and the costs of uncompensated care have decreased, from $46.4 billion in 2013 to $35.7 billion in 2015, according to the American Hospital Association. However, there was a slight increase in 2016, with $38.3 billion in uncompensated care costs.

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