DSH Exception

The A/B MAC (A) shall review the documentation submitted in support of the provider's request for a disproportionate share adjustment under 42 CFR 412.106(c)(2) of the regulations. Beginning with Federal Fiscal Year (FY) 2011 A/B MACs (A) shall submit to CMS annually by February 28 documentation for the hospitals they determine meet the qualifying standards for receiving disproportionate share hospital (DSH) payments under section 42 CFR 412.106(c)(2). This review can be accomplished in conjunction with the audit/settlement of the cost report for the period subject to the adjustment. At a minimum, the A/B MAC (A) shall:

• Verify total inpatient revenues;

• Verify that State and local government appropriations on the financial statements are consistent with amounts contained in governmental appropriations bills; 

• Review, on the basis of a sample of cases, the provider's implementation of procedures for identifying indigent patients. Ensure that amounts for "indigent" patients do not include charges associated with:

° Titles XIX and XVIII patient care;

° Hill-Burton care; 

° Free care to employees; and 

° Bad debts for patients who are not indigent

Reporting for PS&R and CWF

The A/B MAC (A) 's PPS Pricer identifies the amount of the DSH adjustment on each bill. The A/B MAC (A) reports this amount with value code 18 to its PS&R, and to CWF.

Clarification of Allowable Medicaid Days in the Medicare Disproportionate Share Hospital (DSH) Adjustment Calculation (Rev. 1, 10-01-03)

20.3.1.1 - Clarification for Cost Reporting Periods Beginning On or After January 1, 2000 (Rev. 1, 10-01-03)

PM A-01-03

Under §1886(d)(5)(F) of the Social Security Act (the Act), the Medicare disproportionate share patient percentage is made up of two computations. The first computation includes patient days that were furnished to patients who, during a given month, were entitled to both Medicare Part A and Supplemental Security Income (SSI) (excluding State  supplementation). This number is divided by the number of covered patient days utilized by patients under Medicare Part A for that same period. The second computation includes patient days associated with beneficiaries who were eligible for medical assistance (Medicaid) under a State plan approved under Title XIX but who were not entitled to Medicare Part A. This number is divided by the total number of patient days for that same period.

Computation of DSH Adjustment

Compute the amount of the DSH adjustment by multiplying the Federal portion of the hospital's DRG revenues by the appropriate DSH adjustment factor.

EXAMPLE: Hospital A's DSH payment adjustment factor is 5.5 percent (or .0550). The Federal portion of its DRG revenues (including appropriate outlier payments, but excluding any payments for indirect medical education costs) equals $100,000.

Federal DRG revenues x DSH adjustment factor = DSH adjustment amount $100,000 x .055 = $5,500

 DSH Exception

The law contains a provision whereby a hospital can qualify for an operating cost DSH adjustment of:

• 15 percent for discharges prior to October 1, 1988; 

• 25 percent for discharges between October 1, 1988, and April 1, 1990;

• 30 percent for discharges from April 1, 1990, through September 31, 1991; 

• 35 percent for discharges on or after October 1, 1991, if:

° It is located in an urban area and has 100 or more beds; and 

° It demonstrates that, during its cost reporting period, more than 30 percent of its total inpatient care revenues were derived from State and local government payments for indigent care furnished to patients not covered by Medicare or Medicaid.

It is incumbent upon the hospital to demonstrate that more than 30 percent of its total inpatient care revenues are from State and local government sources and that they are specifically earmarked for the care of indigents (that is, none of the money may be used for any purpose other than indigent care). The following are the types of care that are not included as indigent care:

• Free care furnished to satisfy a hospitals Hill-Burton obligation.

• Free care or care a hospital furnished at reduced rates to its employees or by a government hospital to any category of public employee.

• Funds furnished to a hospital to cover general operating deficits. 

• The adjustment is not automatic from year to year but must be applied for on an annual basis

Documentation to support the application includes the hospital's complete audited financial statements and their accompanying notes. The hospital must provide detailed schedules related to State and local revenue appropriations and outline their purpose.

Unless the appropriations are specifically earmarked for indigent patient care, the A/B MAC (A) shall assume that a portion of the funds was intended to cover the costs of other uncompensated care, such as bad debts for non-indigent patients, free care to employees, etc., as well as to cover general operating deficits. The A/B MAC (A) shall calculate the percentage of charity care included in all uncompensated care and apply the percentage to the appropriate funds to determine the amount appropriated for charity care.

Hospitals must submit documentation to support amounts claimed as indigent patient care. This includes a copy of their procedures for determining indigence, steps used to verify a patient's financial information, and methods used to distinguish bad debts from indigence.