Uncompensated Care: Why Hospitals Should Look at DSH, S-10, and Bad Debt with a Singular View Towards Proper Reimbursement

Disproportionate Share Hospitals (DSH), Worksheet S-10, and Bad Debt should not be viewed separately.

Together, they are tightly linked elements of uncompensated care reimbursement and are vital to the proper filing of a Medicare Cost Report.

The Medicare Cost Report integrates these areas so much that intimate knowledge of each of these areas is required to achieve optimal reimbursement while also maintaining compliance.

Disproportionate Share Hospitals (DSH)

Hospitals can optimize their Medicaid eligible days by capturing and validating every patient day eligible to be included in the Medicaid fraction of the DSH calculation. Hospitals should submit a clean and accurate log of eligible Medicaid days with their cost report.

A key is to ensure that 100% of a hospital’s patient population is processed, validating Medicaid eligibility against the home state and against surrounding states when applicable.

All states have retroactive eligibility, and CMS allows hospitals to file amended cost reports, guaranteeing acceptance if DSH is the only change – allowing hospitals to maximize their reimbursement on the amended cost report.

The 2022 IPPS Final Rule requires a Medicaid-eligible day log to be filed with the cost report.

Worksheet S-10

Now that Worksheet S-10 Schedules are used to distribute uncompensated care funds, hospitals must ensure that all uncompensated and indigent care costs are included on the S-10.

To determine a hospital’s uncompensated care costs on Worksheet S-10, a hospital records charges and payments and calculates costs (using the cost-to-charge ratio or CCR from Worksheet C) for services to Medicaid patients, services to SCHIP patients, services to patients covered by a state or local government indigent care program, and services to patients who are given a discount under a hospital’s charity care policy.

Hospitals should match actual claims data to their Patient Financial System (PFS) data to optimize its S-10 charity care and uninsured discounts by capturing and validating every patient eligible to be included in the cost report.

The 2022 IPPS Final Rule requires the submission of a detailed listing of charity care and/or uninsured discounts that correspond to the amounts claimed on the cost report.

Bad Debt

To ensure that no other payor bears the burden of Medicare patients, any uncollected Medicare patient responsibility is eligible for bad debt reimbursement.

Bad debts are now reimbursed at 65% of the total allowable Medicare bad debts. Despite the downward trend, Medicare bad debts continue to be a major source of reimbursement for hospitals.

Every hospital that has a measurable Medicare population should be tracking these bad debts and adding them to their cost report each year.

Now that total bad debts are included on Worksheet S-10 of the cost report, total bad debt should reconcile to the working trial balance and audited financial statements. The reconciliation should show: bad debts written off, recoveries netted, non-hospital bad debts removed, and no non-patient liabilities.

For a Medicare bad debt to be reimbursable, it must meet the following criteria:

  • Collection effort must be reasonable and similar to non-Medicare patients.
  • Related to covered services.
  • Limited to deductible and co-insurance.
  • More than 120 days from date of first bill.
  • Uncollectible at time its written off.
  • Returned from the collection agency.

Hospitals should match claims information to hospital PFS data to optimize their bad debts, both total and Medicare, by capturing and validating every patient bad debt eligible to be included on the cost report. Hospitals need to submit a clean and accurate list of Medicare bad debts with their cost report. The most critical part of claiming bad debt is the supporting documentation for the audit.

The 2022 IPPS Final Rule requires the submission of a detailed bad debt listing that matches the reported bad debt amounts filed on the cost report.

DSH, Worksheet S-10, and Bad Debt are inextricably linked to ensuring hospitals have the most accurate cost report.

Extensive reimbursement experience is often needed to ensure that hospitals receive their appropriate share of uncompensated care reimbursement. Contact a knowledgeable reimbursement expert to help navigate this complex process and ensure compliance.

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