Blog, Reimbursement, The Hospital Finance Podcast®

What will happen to the S-10? [PODCAST]

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In this episode, Scott Besler, Senior Manager in our Reimbursement Services team at BESLER Consulting, discusses what is next for the S-10 worksheet in light of its treatment in the 2017  IPPS Final Rule.
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Michael Passanante: Hi! This is Mike Passanante. Welcome back to the Hospital Finance Podcast. Glad you could be with us.

Today, I’m joined by Scott Besler. Scott is a senior manager in our Reimbursement Services team here at Besler Consulting. Scott has joined us to talk about future trends of the S-10 as some things have changed recently with the IPPS Final Rule.

So, welcome Scott. And thanks for helping us sort this out.

Scott Besler: Hi Mike! I’ll do my best.

Michael: So, as we just mentioned, CMS recently released the fiscal year 2017 IPPS Final Rule and treatment of the S-10 in that Final Rule. This may be a little different than we thought it was going to be. Could you tell us about that?

Scott: Sure! In the proposed rule, CMS outlined their plan for the use of the S-10 that was to be used in the uncompensated care calculation. Prior to that Final Rule being released and after the proposed rule, CMS released transmittal 1681. That too continues to lead providers to believe that this S-10 was actually going to be used.

Then when the Final Rule comes out, CMS mentions that they’re not going to use the S-10 for the calculation of the uncompensated care. Therefore, the use of the S-10 has been further delayed.

CMS really wants to use this data for the calculation of the uncompensated care. I mean it’s $6 billion for the DSH pool, so it is important. CMS just really wants to get it right.

Michael: Scott, has uncompensated care been clearly defined?

Scott: I don’t believe it has. Up until this point, I don’t believe it had. There are many different variations across the country depending on who you ask. Some may believe it’s simply charity care, but it’s not that straight forward mainly because a state’s charity care policy can differ from state to state. Some are strict. Some are liberal in their interpretation.

Others believe it’s charity care and bad debt. And I think that’s probably the closest that you can say.

As you know, charity care is usually care that’s offered where a provider does not expect to receive any type of reimbursement.

Bad debt on the other hand is that’s where the patient may be unable to pay, but hasn’t applied for charity care or it could be as simple as their unwillingness to pay.

So, in the current definition on uncompensated care, I believe it’s going to be the cost of charity care plus any non-Medicare bad debt.

Michael: So, the S-10 now has been formally delayed. How did we get here?

Scott: Well, as I said in the proposed rule, CMS had planned to use the S-10, or in the calculation they were going to use, the S-10 in the third of the calculation of the uncompensated care.

As early as this fiscal year that we’re currently in (so federal fiscal year 2017), it would have been used as I said as a three-year average.

CMS had planned to use the S-10 data from the 2013 Medicare cost reports along with the current days proxy that are currently in use for the other two parts of the calculation.

And then each year, as the day’s proxy would fall out of the calculation, another year of the S-10 data would be used. And this would have led us to 2020 being the first year when all three components utilized in the calculation would be derived from worksheet S-10.

Currently, we have a three-year average that uses Medicaid days from 2011, 2012 and 2013, and also SSI days now from ‘12, ‘13 and ‘14.

And the reason CMS altered the calculation for this federal fiscal year was a way to smooth or assuage the impact of any data anomalies.

Michael: Okay. So, just to be clear, the S-10 is not going to be used this year?

Scott: That’s correct. Well, in the calculation of factor three for the uncompensated care, no. But it will still be used for the EHR or HITECH payments.

And this may be one of the reasons that CMS delayed its use. The HITECH or EHR payment will not use the S-10 after 2017. So the S-10, with maybe some minor line additions or revision here or there to line descriptions, may be in line to be used as early as federal fiscal year ‘18.

Michael: Do you think they’re going to use it in fiscal year ‘18?

Scott: Well, it’s stuff to gauge at this point, Mike. What we do know is that CMS said they would work with the MACs to determine the best use of the data from the S-10. And also perhaps revise, as I said, line descriptions to better define charity care and bad debt.

These numbers are the driving force in the calculation of uncompensated care. And CMS needs to get this correct. There are about 5.8 billion reasons why. Hospitals should look for revised cost report instructions. That will most likely come out in the next cost report transmittal.

Michael:  Scott, can you talk to us about the quality of the data released in the proposed rule?

Scott: Sure! While like any proposed data, there’s always going to be some issues. And it is proposed, so I think CMS really wants to release it to get hospitals, to get a feeling, to get their first view of it. Maybe CMS knew this and that’s why they wanted to show hospitals that the data wasn’t completely accurate, maybe with hope that perhaps spur them into—the hospitals, making sure that they’re confident in their own data.

And in just our limited review, we saw that the S-10 was missing data from approximately 10% of the hospitals that qualify for DSH in the country. And that’s been alarming.

And we still maintain that for this system to work optimally, there needs to be transparency with the data similar to that of the wage index. Release the data, let the hospitals look at the data—not from their institutions, but other institutions—and allow hospitals and associations to work with their members to ensure its accuracy.

Michael:  So, what else can be done to ensure the integrity of the data?

Scott: Well I think CMS and the MACs beginning to meet is a great start. That’s going to allow for a strong foundation. Whenever the foundation’s strong, everything else is strong above it. So when they work together, I think that’s a good start.

I think CMS also needs to take their time and get it right the first time and not rush the calculation or methodology just because they had said they were going to use it.

I believe that by CMS stating that their plan is to utilize the S-10 by federal fiscal year ‘21 or sooner, it puts the industry on notice to make sure that their data is submitted accurately.

And then also, I think CMS needs to provide the MAC with a uniform work plan, and that’ll be the best place to start.

Michael: And what will that work plan address?

Scott: Well, a few things. They’re going to address the all-inclusive rate providers that may have unique cost allocations or also cost associated with non-covered services to Medicaid and other commercial payments.

Then there are charity care adjustment based on a hospital’s actual policy and then also relation to the IRS 501 (r).

And then finally, I think the doctors and co-insurance that are truly bad debt, but recorded as discounted charges, I think that has to be addressed in the work plan.

So, in closing, I think that both CMS and the MACs, as I said, they need to get it right. But we in the provider community need to meet them halfway and make sure that the data submitted is accurate.

The MACs having strict guidelines may help eliminate some gray areas that have created discrepancies in the past with other programs. I think CMS needs to discuss how teaching cost may impact the overall cost to charge ratio that’s used in the S-10 or if it’s even going to be included as CMS may believe that they already covered those costs with their IME and GME reimbursements that they give hospitals currently.

A comparison of both charity care and bad debt policies would be helpful as would protection for both expansion and non-expansion states as no matter which direction CMS and MACs go with the S-10, there would be groups of hospitals that gain and groups of hospitals that lose.

So, hospitals need to be prepared. The S-10 is delayed, but it doesn’t mean that it’s gone. It could be used as early as next federal fiscal year.

I think also we can’t lose sight or CMS can’t lose sight of where these dollars are most needed. I think some type of hold harmless provision or maybe even like a phase-in over time would benefit hospitals. They’re going to have to prepare for some losses, and that’s something that many hospitals can’t sustain.

Michael: Thanks again for stopping by and shedding some light on what might be next for the S-10.

Scott: Thank you, Mike.

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