Medicare Claims Processing Manual

Included Days

In calculating the number of Medicaid days, the hospital must determine whether the patient was eligible for Medicaid under a State plan approved under Title XIX on the day of service. If the patient was so eligible, the day counts in the Medicare disproportionate share adjustment calculation. The statutory formula for "Medicaid days" reflects several key concepts. First, the focus is on the patient's eligibility for Medicaid benefits as determined by the State, not the hospital's "eligibility" for some form of Medicaid payment. Second, the focus is on the patient's eligibility for medical assistance under an approved Title XIX State plan, not the patient's eligibility for general assistance under a State-only program. Third, the focus is on eligibility for medical assistance under an approved Title XIX State plan, not medical assistance under a State-only program or other program. Thus, for a day to be counted, the patient must be eligible on that day for medical assistance benefits under the Federal-State cooperative program known as Medicaid (under an approved Title XIX State plan). In other words, for purposes of the Medicare disproportionate share adjustment calculation, the term "Medicaid days" refers to days on which the patient is eligible for medical assistance benefits under an approved Title XIX State plan. The term "Medicaid days" does not refer to all days that have some relation to the Medicaid program, through a matching payment or otherwise; if a patient is not eligible for medical assistance benefits under an approved Title XIX State plan, the patient day cannot become a "Medicaid day" simply by virtue of some other association with the Medicaid program.

Medicaid days, for purposes of the Medicare disproportionate share adjustment calculation, include all days during which a patient is eligible, under a State plan approved under Title XIX, for Medicaid benefits, even if Medicaid did not make payment for any services. Thus, Medicaid days include, but are not limited to, days that are determined to be medically necessary but for which payment is denied by Medicaid because the provider did not bill timely, days that are beyond the number of days for which a State will pay, days that are utilized by a Medicaid beneficiary prior to an admission approval but for which a valid enrollment is determined within the prescribed period, and days for which payment is made by a third party. In addition, we recognize in the calculation days that are utilized by a Medicaid beneficiary who is eligible for Medicaid under a State plan approved under Title XIX through a managed care organization (MCO) or health maintenance organization (HMO). However, in accordance with 42 CFR 412.106(b)(4), a day does not count in the Medicare disproportionate share adjustment calculation if the patient was entitled to both Medicare Part A and Medicaid on that day. Therefore, once the eligibility of the patient for Medicaid under a State plan approved under Title XIX has been verified, the A/B MAC (A) must determine whether any of the days are dual  entitlement days and, to the extent that they are, subtract them from the other days in the calculation.

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.

EXAMPLES

Hospital A is an urban hospital with 200 beds and has a DSH percentage of 21 percent. Its December 1990 DSH payment factor is computed:

(21 - 20.2) (.65) + 5.62 = 6.14% 

DSH adjustment factor = 6.14% (.0614)

Hospital B is an urban hospital with 250 beds and has a DSH percentage of 45 percent. Its December 1990 DSH payment adjustment factor is computed:

(45 - 20.2) (.65) + 5.62% = 21.74% 

DSH adjustment factor = 21.74% (.2174)

Urban hospitals with 100 or more beds and rural hospitals with 500 or more beds whose DSH percentage is equal to or less than 20.2 - the following formula is used:

(DSH % - 15) (.6) + 2.5

• Urban hospitals with fewer than 100 beds - 5 percent. 

• Rural hospitals that are RRCs and sole community hospitals - the greater of 10 percent or the percentage determined using the following formula:

(DSH % - 30) (.6) + 4.0

Hospital C is a rural hospital that is an RRC and a sole community hospital, and has a DSH percentage of 35 percent. Its DSH payment factor is computed:

(35 - 30) (.6) + 4.0 = 7%

DSH adjustment factor = 10% (.1000)

Hospital D is a rural hospital which is a RRC and a sole community hospital. It has a DSH percentage of 45 percent. Its DSH payment factor is computed:

(45 - 30) (.6) + 4.0 = 13%

DSH adjustment factor is 13% (.1300)

• Rural hospitals that are RRCs, but are not sole community hospitals-the following formula is used:

(DSH % - 30) (.6) + 4.0

• Rural hospitals that are sole community hospitals, but are not RRCs - 10 percent.

• Rural hospitals not described above with 100 beds or less - 4 percent if DSH percentage is 45 percent or more.

• Rural hospitals not described above with more than 100 beds but fewer than 500 beds - 4 percent if DSH percentage is 30 percent or more.

• Urban hospitals with 100 or more beds whose DSH percentage is less than or equal to 20.2 - the following formula is used:

(DSH % - 15) (.6) + 2.5

For the period October 1, 1993, through September 30, 1994:

• Urban hospitals with 100 or more beds whose DSH percentage is greater than 20.2-the following formula is used:

(DSH % - 20.2) (.8) + 5.88

• Urban hospitals with 100 or more beds whose DSH percentage is less than or equal to 20.2 - the following formula is used:

(DSH % - 15) (.6) + 2.5

• Rural hospitals that are RRCs and sole community hospitals - the greater of 10 percent or the percentage determined using the following formula: 

(DSH % - 30) (.6) + 4.0

EXAMPLES

Hospital A is an urban hospital with 200 beds and has a DSH percentage of 21. Its DSH payment factor is computed:

(21 - 15)(.5) + 2.5 = 5.5%

DSH adjustment factor = 5.5% (.0550)

Hospital B is an urban hospital with 250 beds and has a DSH percentage of 45. Its DSH payment adjustment factor is computed:

(45 - 15)(.5) + 2.5 = 17.5%

DSH adjustment factor = 15% (.1500) (the maximum adjustment under the law)

• Urban hospitals with fewer than 100 beds - 5 percent. 

• Rural hospitals with fewer than 500 beds - 4 percent.

For the period October 1, 1988 - March 31, 1990:

Urban hospitals with 100 or more beds and rural hospitals with 500 or more beds - the following formula is used:

(DSH % - 15) (.5) + 2.5

Hospital A is an urban hospital with 200 beds and has a DSH percentage of 21 percent. Its DSH payment factor is computed:

(21-15)(.5) + 2.5 = 5.5%

DSH adjustment factor = 5.5% (.0550)

Hospital B is an urban hospital with 250 beds and has a DSH percentage of 45 percent. Its DSH payment adjustment factor is computed:

(45-15) (.5) + 2.5 = 17.5%

DSH adjustment factor = 17.5% (.1750, the limit was removed effective 10/1/88)

• Urban hospitals with fewer than 100 beds - 5 percent. 

• Rural hospitals with fewer than 500 beds - 4 percent.

For the period April 1, 1990 - December 31, 1995:

Urban hospitals with 100 or more beds and rural hospitals with 500 or more beds whose DSH percentage is greater than 20.2 - the following formula is used:

Through December 31, 1990 - (DSH % - 20.2) (.65) + 5.62

January 1, 1991, and later - (DSH % - 20.2) (.7) + 5.62

DSH payments

For operating DSH payments:

For discharges between May 1, 1986, and March 31, 1990, a hospital qualifies for an operating cost DSH adjustment if it has a DSH percentage of:

• At least 15 percent for an urban hospital with 100 or more beds;

• At least 40 percent for an urban hospital with less than 100 beds; or 

• At least 45 percent for a rural hospital, with fewer than 500 beds

For discharges on and after October 1, 1986, the hospital qualifies for an operating cost DSH adjustment if it has a DSH percentage of at least 15 percent, is located in a rural area, and has 500 or more beds.

For discharges between April 1, 1990 and December 31, 1995, a hospital qualifies for an operating DSH adjustment if it has a DSH percentage of:

• At least 15 percent for an urban hospital with 100 or more beds, or a rural hospital with 500 or more beds; 

• At least 40 percent for an urban hospital with fewer than 100 beds; 

• At least 45 percent for a rural hospital with 100 beds or fewer, if it is not also classified as a sole community hospital; or 

• At least 30 percent for a rural hospital with more than 100 beds which is classified as a sole community hospital.

A hospital qualifies for a capital DSH adjustment if it is located in a large urban or other urban area, has at least 100 beds, and has a DSH percentage greater than 0.

For the DSH determination, the number of beds in a hospital is determined by counting the number of inpatient care bed days available during the cost reporting period, excluding beds assigned to newborns, custodial care, and PPS excluded distinct part hospital units, and dividing that number by the number of days in the cost reporting period. Inpatient care bed days available should be the same as Indirect Medical Education (IME) bed days. Available beds may not match the number of licensed beds.

B. - Determination of Operating DSH Adjustment Percentage

Hospitals that meet the DSH percentage criteria are entitled to adjustments to the Federal portion of their operating cost DRG payments (including the Federal portion of outlier payments) as follows. For hospitals that qualify for DSH payment, Pricer calculates the DSH adjustment percentage

Urban hospitals with 100 or more beds and rural hospitals with 500 or more beds - 

The lesser of 15 percent or the percentage determined by using the following formula:

(DSH % - 15)(.5) + 2.5

Additional Payment Amounts for Hospitals with Disproportionate Share of Low-Income Patients

(Rev. 2393, Issued: 01-25-12, Effective: 10-01-11, Implementation: 07-02-12)

The Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985, (Public Law: 99-272), provides for an additional payment to an urban hospital of 100 or more beds that serves a disproportionate share of low-income patients.

Adjustments are made in the Federal portion of the operating cost DRG payment to increase payments to hospitals serving a disproportionate share of low-income patients. The additional payment equals the Federal portion of the operating cost DRG payment and outlier payments, but excludes any additional payments for the costs of indirect medical education multiplied by an adjustment percentage.

If a hospital meets the disproportionate share hospital (DSH) definition, an additional operating cost payment will be made for discharges occurring on or after May 1, 1986. The DSH adjustment is applied only to the Federal portion of the operating cost DRG payment (including outlier payments). It is basically a year-end lump sum adjustment. However, the A/B MAC (A) will identify hospitals that are eligible to receive the DSH adjustment and make interim payments subject to a year-end settlement based upon the hospital's DSH percentage for the cost reporting period. The DRG payment a hospital receives includes the interim operating cost DSH payment and an interim operating indirect medical education adjustment.

For services on or after October 1, 1997, the DSH percentage is not applied to outlier payments.

The data is used for settlement purposes for hospitals.

Note that CMS issues a Recurring Update Notification prior to the Federal Fiscal Year beginning date to provide contractors with the updated SSI file information.

A. - Regular Calculation of DSH Percentage 

The operating DSH percentage is the sum of:

• The percentage of the hospital's total Medicare Part A patient days attributable to Medicare patients who are also SSI recipients (this percentage will be supplied to the A/B MAC (A) by CMS). Since the SSI/Medicare percentages are determined by CMS on a fiscal year basis, hospitals will be afforded the option (for settlement purposes) of determining their SSI/Medicare percentage based upon data from their own cost reporting period. If a hospital avails itself of this option, it must furnish its FI, in a manner and format prescribed by CMS, data on its Medicare patients for the cost reporting period. CMS will match these data to data supplied by SSA to determine the patients dually entitled to Medicare Part A and SSI for the hospital's cost reporting period. The hospital bears the full cost of this process, including the cost of verification by SSA.

Consistent with the regulations at 42 CFR 412.106(b)(2)(i) and 412.106(b)(2)(iii), patients who are enrolled in Medicare Advantage (administered through Medicare Part C) should also be included in the Medicare fraction. These days will be included in the Medicare/SSI fraction, but in order for them to be counted, the hospital must submit an informational only bill (TOB 111) which includes Condition Code 04 to their Medicare contractor. This will ensure that these days are included in the hospital’s SSI ratio for Fiscal Year 2007 and beyond.

Acute Care hospitals that received DSH during FY 2006 are also required to submit informational only bills for their Medicare Advantage patients.

For MA patients, Long Term Care Hospitals are also required to submit informational only bills (TOB 111) with Condition Code 04.

For MA patients, Inpatient Rehabilitation Facilities are also required to submit informational only bills (TOB 111) with both Condition Code 04 and the Case Mix Group (CMG) from the IRF PAI. Refer to section 140.2.4.3 for the requirements for Inpatient Rehabilitation Facilities.

The percentage of total patient days attributable to patients entitled to Medicaid, but not to Medicare Part A. 

Provider-Specific File

(Rev. 3431, Issued: 12-29-15, Effective: 10-01-15, Implementation: 10-05-15)

The PROV file contains needed information about each provider to enable the pricing software to calculate the payment amount. Updates are published annually or quarterly, as needed, to notify A/B MACs of any changes to payment systems requiring updates to the PSF. 

The A/B MACs maintain the accuracy of the data in accordance with the following criteria. 

Whenever the status of any element changes, the A/B MAC prepares an additional record showing the effective date. For example, when a hospital's FY beginning date changes as a result of a change in ownership or other "good cause," the A/B MAC makes an additional record showing the effective date of the change. 

The format and data required by the PRICER program and by the provider-specific file is found in Addendum A.

The A/B MACs submit a file of provider-specific payment data to CMS CO every three months for PPS and non-PPS hospitals, inpatient rehabilitation hospitals or units (referred to as IRFs), long term care hospitals (LTCHs), inpatient psychiatric facilities (IPFs), SNFs, and hospices, including those in Maryland. Regional home health A/B MACs (HH) submit a file of provider specific data for all home health agencies. A/B MACs serving as the audit A/B MAC for hospital based HHAs do not submit a file of provider specific data for HHAs. 

The A/B MACs create a new record any time a change occurs for a provider. Data must be reported for the following periods: October 2 - January 1, January 2 - April 1, April 2 - July 1, and July 2 - October 1. This file must be received in CO within seven business days after the end of the period being reported. 

NOTE: A/B MACs submit the latest available provider-specific data for the entire reporting period to CO by the seven-business day deadline. If CO fails to issue applicable instructions concerning changes or additions to the file fields by 10 calendar days before the end of the reporting period, the A/B MAC may delay reporting of data related to the CO instructions until the next file due date. For example, if CO instructions changing a file field are issued on or after September 21 with an effective date of October 1, the A/B MAC may exclude the October 1 CO-required changes from the file submitted by October 9. The A/B MAC includes the October 1 CO-required changes, and all subsequent changes through January 1 in the file submitted in January.

PPS Pricer Program

(Rev. 1, 10-01-03) A3-3615.3, A3-3656.3

The CMS provides a Pricer program to determine the price upon which to base payment under prospective payment. A separate Pricer installation guide is provided. The A/B MAC (A) uses the Pricer appropriate for the date of discharge. 

After GROUPER determines the DRG, the A/B MAC (A) 's system calls the Pricer program. Pricer determines the price to pay and prepares a report. 

Four data files are included. CMS maintains three: 

• DRGX file - contains DRG weights, average length of stay and outlier cutoff points. 

• MSAX file - contains urban and rural wage indexes used in calculating payment. CMS may request that the A/B MAC (A) make interim changes to this file when index changes are issued for individual hospitals after issuance of Pricer for the period. 

• RATE file - contains census division values and updating amounts used in calculating payment.

The A/B MAC (A) maintains the provider-specific file, (PROV file). This contains information about the facts specific to the provider that affect computations, e.g., effective dates for PPS, type of provider (for application of special computation rules), census division, MSA, adjusted cost per discharge, disproportionate share adjustment percentage, and capital data. 

Pricer also calculates the disproportionate share adjustment and adds it to the DRG payment. Correct calculation depends upon the accuracy of related information the A/B MAC (A) includes in the PRICER PROV file. 

The Pricer program applies the DRG relative weights, hospital urban or rural and census division location, provider-specific data, and beneficiary hospital data from the bill to determine the amount payable for each PPS discharge bill. 

Pricer uses the Intern-to-Bed ratio in calculating the indirect teaching adjustment for operating costs for the A/B MAC (A) to accumulate and use in related payments. Pricer uses the intern-to-average daily census ratio to calculate the indirect teaching adjustment for capital costs. The A/B MAC (A) ensures that these ratios are available for Pricer to compute payment for teaching hospitals. It includes the ratios in its PROV file to ensure that cost outliers are not overpaid to its teaching hospitals. 

Pricer does not calculate utilization days required for the PS&R, CWF, or cost report. It does not determine the amount to pay after deduction for deductible, coinsurance, or the primary payment where Medicare is secondary. The A/B MAC (A) must calculate the price and make adjustments to the price furnished before making payment 

The A/B MACs (A) use the Pricer implementation guide for information concerning Pricer processing reports, input parameters and data requirements.

DRG GROUPER Program

(Rev. 3030, Issued: 08-22-14, Effective: ASC X12: January 1, 2012, ICD-10: Upon Implementation of ICD-10, Implementation: ICD-10: Upon Implementation of ICD- 10, ASC X12: September, 23 2014)

The A/B MAC (A) pays for inpatient hospital services on the basis of a rate per discharge that varies according to the MS-DRG to which a beneficiary's stay is assigned. Each MSDRG represents the average resources required to care for a case in that particular MSDRG relative to the national average of resources consumed per case. The MS-DRG weights used to calculate payment are in the Pricer DRGX file. 

The A/B MAC (A) uses the GROUPER program to assign the MS-DRG number. GROUPER determines the MS-DRG from data elements reported by the hospital. This applies to all inpatient discharge/transfer bills received from both PPS and non-PPS facilities, including those from waiver States, long-term care hospitals, and excluded units. T

he Pricer (PPSMAIN) driver program calls the correct fiscal year GROUPER based upon the discharge date. If the A/B MAC (A) or shared system writes its own driver program, it must access the GROUPER for the correct FY based on discharge date. GROUPER does not determine the MS-DRG price. GROUPER input/output are specified below. The A/B MAC (A) determines the best place in its total system to place the GROUPER program.

Grouper requires the following items:

1. Principal and up to 24 other diagnoses 

2. Principal and up to 24 additional procedures 

3. Age at last birthday at admission 

4. Sex (1=male and 2=female) 

5. Discharge destination (patient status code from the claim)

The claim sex coding is M for male and F for female while GROUPER is l for male and 2 for female. Discharge destination codes are similar to claim definitions for patient status except codes 20-29 are summarized as 20. The A/B MAC (A) calculates age at admission. GROUPER needs age rather than date of birth.

Grouper responds with the following information: 

1. Major diagnostic category 

2. MS-DRG number 

3. Grouper return code (a one position code indicating the action taken by the program) 

4. Procedure code used in determining the MS-DRG 

5. Diagnosis code used in determining the MS-DRG 

6. Secondary diagnosis code used in determining the MS-DRG, if applicable

Paying Claims Outside of the MCE

All institutional inpatient claims are routed through the MCE before they are processed to payment. There may be special circumstances, however, when it is necessary to pay claims bypassing MCE edits. The CMS will notify the contractor of these instances. They include:

• New coverage policies are enacted by Congress with effective dates that preclude making the necessary changes timely; and 

• Errors are discovered that cannot be corrected timely. 

A/B MACs (A) are responsible for reporting problems timely. 

Requesting to Pay Claims Without MCE Approval

The contractor may also request approval from the RO in specific situations to pay claims without first sending them through the MCE. 

Examples of such situations are: 

• A systems error cannot be corrected timely, and the provider's cash flow will be substantially impacted; and/or 

• Administrative Law Judge (ALJ) decisions, court decisions, and CMS instructions in particular cases may necessitate that payment be made outside the normal process.

Procedures for Paying Claims Without Passing through the MCE (Rev. 2117, Issued: 12-10-10, Effective: 01-12-11, Implementation: 01-12-11)

Before an inpatient claim may be paid without first going through the MCE, the contractor shall obtain approval from CMS Central Office or the RO. 

Note: In certain situations, contractors bypass the MCE through an established, CMSinstructed claim processing procedure (e.g., to verify a facility is certified to perform a specified service after a MCE limited coverage edit is applied). Such scenarios do not require approval from the RO as the approval for such a bypass was inherently implied when the established procedure was first implemented.

 In all instances involving payment outside the normal inpatient editing process, the contractor applies the following procedures: 

• Contractors shall submit the claim overriding the MCE using the appropriate field in FISS. 

• Pay interest accrued through the date payment is made on clean claims. Do not pay any additional interest. 

• Maintain a record of payment and implement controls to be sure that incorrect payment is not made, i.e., when the claim is paid without being subject to normal editing. 

• Monitor MCE software to determine when the impediment to processing is removed. 

• Consider the claim processed for workload and expenditure reports when it is paid.

• Submit to the RO Consortium Contractor Manager (CCM) by the 20th of each month a report of all inpatient claims paid without processing through the MCE with the exception of override situations explained in the Note above (e.g., for limited coverage edits). The list of claims paid outside of the MCE is to include the following information:

o HIC 

o DCN 

o TOB

o DOS (From/Through) 

o Provider Number 

o MCE/OCE OVR (Claim/Line)

o Reimbursement Amount 

o Receipt Date 

o Process Date 

o Paid Date

Also, include summary data for each edit code showing claim volume and payment. Any override approvals received and/or relevant JSM references should be annotated on the reports.