Blog, Reimbursement, The Hospital Finance Podcast®, Uncompensated Care

The Common Elements of Uncompensated Care [PODCAST]

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The Hospital Finance Podcast

In this episode, we are joined by members of BESLER’s Reimbursement services team to discuss how DSH, Bad Debts, and S-10 relate to uncompensated care funding for hospitals.

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Highlights of this episode include:

  • Tips on what hospitals can be doing right now to ensure they are being reimbursed properly.
  • The importance of hospitals submitting clean and accurate logs of Medicaid days with their cost reports.
  • What the requirements are for total and Medicare bad debt to be included on the Worksheet S-10.
  • Actions that hospitals can take regarding bad debts.
  • Insight on how worksheet S-10 is currently playing into the uncompensated care pool.
  • And more…

Download our special report for more on the interdependence of DSH, S-10, and Bad Debts and how they determine whether a hospital will receive its appropriate share of uncompensated care reimbursement.

Mike Passanante: Hi, this is Mike Passanante. And welcome to the award-winning Hospital Finance Podcast.

Today, we’re going to be covering part one of our three-part series around uncompensated care. And I am joined by Bob Mahoney who’s a senior consultant on our Reimbursement Services Team here at BESLER.

Bob, welcome to the podcast.

Bob Mahoney: Michael, thank you! Nice to be here. I’m going to be talking about DSH today and how it relates to uncompensated care funding for hospitals.

Mike: Yeah, and that’s really my first question. So this is going to be a three-part series. And we’re going to be talking about DSH first time out. And then, we’re going to be talking about the S-10. And we’re going to be talking about bad debt on different podcasts.

But today, you are going to focus on DSH. Why DSH? Why is that part of the entire uncompensated care pool?

Bob: The uncompensated care pool is such a significant number for hospitals and their bottom line. You really can’t look at uncompensated care in terms of hospital reimbursement in the Medicare cost report without looking at DSH along with bad debt and the S-10 because that’s where they’re all coming together.

So today, what I’m going to do is focus on what you need to do keep your DSH numbers correct and positive and compliant, and also how this ties in with your uncompensated care, where it’s going to go in the S-10, and also how it affects bad debt.

The uncompensated care number—and I’ll probably repeat this a couple of times—for 2019, in the final rule, is $8 billion. It’s a significant number for hospitals. And DSH is a large part of that.

Mike: So, let’s get something laid out on the table because there was a ruling in December of 2018 by a federal judge in Texas declaring the Affordable Care Act unconstitutional. And of course, DSH is affected by the ACA.

So, is there any effect on DSH at this point?

Bob: At this point, no. And for something to go through the court system, it’ll take time. But on December 14th, a federal judge in North Texas district ruled that the entire ACA was rendered unconstitutional after Congress in 2017 repealed the tax penalty and forced an individual mandate. This ruling of course is being appealed by the Fifth Circuit Court of Appeals and possibly the Supreme Court before it’s completely settled.

So this would be probably late 2019 before we hear about it again; and probably into 2020 if it goes to the Supreme Court.

But as most people on this podcast remember, it was Section 3133 of the ACA which changed the Medicare DSH starting in 2014. CMS adjusted Medicare DSH payments. And 75% of the funding came from the newly insured population which was part of the uncompensated care pool which, as I’ve said earlier, was $6.8 billion in 2018. It’s projected to be over $8 billion in 2019.

Mike: So Bob, you mentioned that 75% of the funding is coming from newly insured. What about the 25%?

Bob: The other 25% which some people called classic DSH is still very important. And it’s how you qualify for DSH. And obviously, if you qualify for DSH, it gets you into the uncompensated care pool. And it’s 25% based on your patient volume. So it’s a very important number. And it triggers the whole uncompensated care and S-10 worksheet.

Mike: So, given this new mix, is the importance of the empirical DSH been reduced?

Bob: Yes and no. I mean empirical DSH is still an impact for many hospitals. Like I said, you need it to qualify to get into the uncompensated care pool and be a DSH. It affects your 340B which is very important with pharmaceutical payments—drug charges, we know, being high.

The ACA with the Medicaid expansion, allowed many states to expand their Medicaid programs. They allowed hospitals to qualify that hadn’t previously qualified. Those hospitals are finding it challenging because they’re less experienced. Becoming a DSH hospital and getting the UCC money does have its benefits, but there is some work to do with that.

You need to fill out your cost report properly and have the right documentation so you can protect your appeal rights later on as these laws keep changing.

Mike: That’s right. And hospitals work hard to make sure they get reimbursed properly.

Bob, do you have any tips on what hospitals could be doing now?

Bob: They need to optimize their Medicaid eligible days by capturing and validating every patient eligible to be included in the Medicaid fraction DSH calculation. Like I said, that gets you the 25% but also kicks off the 75%. And I think it’s real important nowadays, it’s a regulation, that hospitals submit a clean and accurate log of Medicaid days with their cost report.

Mike: And that’s a requirement now, isn’t that correct?

Bob: Yes, that is a requirement in the 2019 final rule. A Medicaid eligible daylog that agrees with the days being claimed be filed with the cost reports. Hospitals need to file a report that is clear of errors and compliant. That would preserve their appeal rights. And it makes the process even smoother.

Mike: Yeah, certainly a complex area, Bob, and one that’s going to potentially be affecting hospitals that maybe didn’t deal with DSH in the past. So it’s something that everyone needs to be aware of.

Bob: And it is important. Tying this all back together, the UCC, not only when you submit the cost report, you need to submit the log for your DSH days, but you also need to submit your bad debt log and an uncompensated care log.

So, these are big changes. And that’s how the S-10’s are going to really affect all of these and how you’re paid. It’s a combination of your DSH money, your uncompensated care pool, and the hospital’s bad debts. You have to submit clean logs. This is going to be a big number going forward. That’s 75%. And eventually, it’ll be 100%.

So, thank you.

Mike: Yeah, I look forward to exploring those on future podcasts in this series and hearing more about that in this most complex area and this new horizon of the uncompensated care pool that we’re dealing with.

Bob, thanks so much for joining us on the podcast today.

Bob: Thanks for having me, Mike.

Mike: If you’d like to download our new paper that talks about uncompensated care, and specifically S-10, bad debt and DSH, go to, and get your copy today.

Mike Passanante: Hi, this is Mike Passanante. And welcome back to the Hospital Finance Podcast®.

Today, we’re looking at part two of our series around uncompensated care with a focus on bad debt. And to help me understand more about that topic, I’m joined by Dana Aylward who is a senior consultant on our Reimbursement Services team here at BESLER.

Dana, welcome back to the podcast.

Dana Aylward: Thank you Mike. Thank you for having me again.

Mike: Dana, let’s walk through some things around bad debt. First off, it’s been rumored over the years that the reimbursement of Medicare bad debt is going to be eliminated. Have there been any recent changes?

Dana Aylward: No, not right now. Well, you are correct, the elimination of the reimbursement for Medicare bad debts has been under the radar for several years. CMS has reduced reimbursement down to 65% (or 63% if accounting for sequestration). Despite the payment cuts, Medicare bad debts continue to be a major source of reimbursement for hospitals.

Mike: Okay, great. So bad debts are here for the moment. And now that they’re included on Worksheet S-10 and used for the allocation of the uncompensated care pool, do we see that changing at all?

Dana Aylward: No, the cost reporting forms captures total bad debt and Medicare bad debts on separate lines. Total bad debts for the entire facility, including sub-providers, are reported on Worksheet S-10, line 26, and should be inclusive of the Medicare bad debt. Line 2701 was added to capture Medicare allowable bad debts for the entire facility.

The non-reimbursable Medicare bad debts, the 35% reduced portion which is mainly the deductibles and co-insurance is not subject to the cost-to-charge ratio, while the non-Medicare bad debts is subject to the cost-to-charge ratio.

Mike: Understood! So, what are the requirements for total bad debt to be included on Worksheet S-10.

Dana Aylward: The total bad debt should contain the reconciliation to the working trial balance and the audited financial statements. Keep in mind that bad debt provision is an estimate, and it may not be the actual bad debt write-off.

If that’s the case, the reconciliation should show the following—the total bad debts written off, any recoveries netted, non-hospital bad debts removed such as physician fees, home health agencies and so forth, non-patient liabilities (these would be your denials or non-covered services) and any other descriptions or differences between the reported amount and the audited financials such as your year-end entries or accruals.

Mike: And Medicare bad debts…?

Dana Aylward: The requirements for Medicare bad debts remain the same. For a Medicare bad debt to be reimbursable, it must meet the following criteria:

The collection effort must be reasonable and similar to non-Medicare patients. The write-off is more than 120 days from the first bill date to the patient, amount reported is related to covered services, amounts are limited to deductible insurance, and the amounts deemed uncollectable at the time written off such as indigent or Medicaid crossovers. Also, make sure you have any amounts returned from the collection agencies.

Mike: Okay. So thanks for laying the foundation around bad debt for us. So Dana, do you have any suggestions for hospitals regarding bad debts?

Dana Aylward: The 2019 IPPS final rule requires the submission of a detailed bad debt listing that matches the reported bad debt amounts filed on the cost report. Hospitals need to file accurate bad debt listings that are free of errors and compliance issues.

Since S-10 will be subject to audits, it is highly recommended that hospitals maintain bad debt listings for the entire complex that mirrors the Medicare bad debt listing layout.

Hospitals should match claims information to their Patient Financial System or PFS data in order to optimize their bad debt. We need to be cognizant of not just Medicare but for all payers. Be sure to validate every patient bad debt which is included on the cost report. The collection effort should be consistent with the Medicare rules. There may be recoveries made in the current year for previously reported bad debts. Make sure to identify these amounts.

Also keep an eye out on major increases or decreases from year to year. These types of slings may trigger further sampling or explanations for the MAC. MACs will be looking for duplicates. So in the event a patient moves from the bad debt listing to the charity care side, be sure those accounts are reviewed.

There may be offsets or reclasses for any patient that may move from one listing to another. Ultimately, these accounts fall under the total entire uncompensated care cost. But the cost-to-charge ratio may or may not affect these reclasses if they’re moved to the insured charity care line.

Mike: Great detail there, Dana. Can you go a little bit further and tell us the level of detail that might be needed for an audit?

Dana Aylward: Yes, MAC auditors will be on the lookout for detailed patient listings similar to the Medicare bad debt log. In addition to the proof of reasonable collection efforts, auditors will want to see the revenue code or UB code and CPT HCPCS Summary. This is to ensure allowable charges are being reported, mainly non-physician fees. It is recommended that patient payments and third-party payments and adjustments be separated. It is likely patient responsibility, driven by the agreement, will be tested.

And furthermore, don’t forget to keep your bad debt, charity care and financial assistance policy handy.

Mike: Great advice, Dana. Thank you so much for joining us on the podcast today to talk about bad debt as it relates to the entire pool of uncompensated care.

Dana Aylward: You’re welcome. Thank you very much for having me, Mike.

Mike: To get your copy of our new paper, The Common Elements of Uncompensated Care, visit

Mike Passanante: Hi, this is Mike Passanante. And welcome back to the award-winning Hospital Finance Podcast®. 

Today, we’re going to be talking about issues to watch out for in the preparation of worksheet S-10. And joining me to discuss that topic is Jeff Wolf who is the Director of Reimbursement Services at BESLER.

Jeff, welcome to the program.

Jeff Wolf: Thank you very much. Glad to be here.

Mike: So Jeff, before we dive into very specific issues around worksheet S-10, can you talk to our audience a little bit about how the S-10 is playing into the entire uncompensated care pool these days?

Jeff Wolf: Well, S-10, as most people know, has gained importance over the last couple of years in that the DSH proportionate share payments is being allocated 25% between the old empirical DSH calculation based on the eligible patients or Medicaid-eligible patients.     

The S-10 has taken the 75% of that calculation and is being used to identify the amount of money that each hospital will be entitled to. So the importance of S-10 has really risen in the last three or four years.

Mike: For anyone who’s familiar with the S-10, there are two methods for preparing that worksheet. They are the GL versus the transaction codes. Can you tell us what the differences are between the two?

Jeff Wolf: Yeah, simply put, the general ledger method uses data that eventually booked into the general ledger or the trial balance for the hospital. And people use that to identify the net reimbursement for their charity care and their bad debts as they’re written off.

And that method works for identifying some totals, but it’s not very detailed. If you think of general ledger transactions, they’re not by patient. They’re not detailed enough for what these audits are looking for.

When we’re talking about the transaction code method on the other hand, it’s extremely detail-oriented. Basically, the data files are the transaction codes that are posted for every patient account during the year, identifying net reimbursement, charity care and bad-debt write-off’s. This means that the GL method do not contain that level of data, but the transaction codes do. And they’re going to be much better for audits.

Mike: Jeff, how does this affect the net revenue calculations?

Jeff Wolf: Well, the GL method is simply to utilize and to process the data. The values are easier to reconcile to the financial statements. What the GL method does not handle well is when the primary payer status changes after the provision of services. In these cases, the GL method is reporting incorrect values for the net reimbursement for the specific payers.

The transaction code method on the other hand is more difficult to use and has massive amounts of data that the facility must manage and process. But the results are more accurate since the transaction codes are derived from the patient accounting system. And that data can be generated with the current primary and secondary pairs rather than the data at the time of treatment.

So, the transition code method does have more difficulty with reconciliations. But the patient level of detail is exactly what’s needed during the audit.

Mike: And how does this affect charity care and bad debts?

Jeff Wolf: This is the section of S-10 where the GL method completely breaks down. Both the charity care and the bad debt listings must be by patient/encounter. Therefore, using the GL method for filing S-10 will cause a lot of data rework and reconciliation problems during the audit.

On the other hand, the transaction method, this is where it shines because you are in detail by patient, by transaction. You can absolutely show the transaction codes related to every charity care of bad debt write-off.

Again, since the transaction code method is derived from the patient accounting system, the data can be generated as needed, directly showing patient payments, the contractual adjustments, the write-off’s successful, et cetera.

That makes it much easier to manage for the requirements of audit.

Mike: And Jeff, if you’re recommending the use of the transaction method for the S-10, how do you identify and reconcile the detailed data?

Jeff Wolf: Well, when we talk about the transaction code method, we’re actually talking about utilizing a minimum of three different data sources in order to provide the necessary information. The minimum data sources are the detailed charge records, the transaction codes (or otherwise known as the payment and adjustment file), and the 835 payment remittances.

Each of these files need to be reconciled either to the general ledger or the financial statements to ensure that you’re dealing with the correct data.

Mike: So Jeff, let’s talk through the data sources. First, walk us through detailed charges.

Jeff Wolf: Okay. So the detailed charges are a summary by patient of all the charges posted for each encounter by rep code. At this point, we’re not bringing in the DRG or the HCPCS codes. But as S-10 evolves, these fields may be needed. So having that data available will be important.

To ensure that you have all the charges for all the patients treated in a year, that data must be reconciled from the total patient charges detailed file to the general ledger and/or the financial statements.

Mike: Okay. And now walk us through transaction codes.

Jeff Wolf: So, the transaction codes are detailed listing of all payments and adjustments to patient accounts for the year. This represents all of the claim processing and collection efforts that are performed on a patient encounter and claim.

While this data is massive, and it is co-mingled, you can separate out and ID certain categories of transactions and be able to reconcile those categories to the general ledger financial statements.

The kind of categories we’re talking about would be contractual adjustments. Those could be identified directly through the GL. Your total payments (in other words, your cash receipts), or your total write-off’s, all of those can be reconciled back to the GL as specific dollar amounts.

Mike: Jeff, the third data element is the 835/837 transactions. Tell us about those.

Jeff Wolf: So, the 835 transactions are summary claim adjustment data by patient encounter. These data elements include insurance payments, patient responsibilities, non-covered amounts. These payments should be reconciled in total by patient to the insurance payments in the transaction codes.

So, it’s very important to reconcile the transaction codes before you reconcile the 835 because the 835 only can be reconciled to individual claims and to individual patients.

So this kind of a hierarchy: you have to do the total charges first, you have to do the transaction code second, and then you have to be able to do the 835’s.

Mike: And if you’re using all of these detail records which can contain millions of records literally, Jeff, what are the critical data elements that people should be paying attention to?

Jeff Wolf: Well, one of the most important ones is identifying the critical payer’s primary and secondary payer types. Of those, you’ve got your Medicare, your Medicaid, you have your CHIP and your state and local-independent indigent programs. But you also need to know which private insurance are in network as well as out of network. And that takes a little bit of work with your patient accounting folks to make sure you identify which programs or which policies are in and out of network.

You also need to identify the transaction codes that represent some of the following categories, things like contractual adjustments, insurance payments, patient payments, write-off’s, length of stay adjustment, and other miscellaneous adjustments. Each of those categories needs to be a separate bucket of analysis under the transaction code, 1) so you can reconcile them back, but 2) so you can use them in the analysis by patient as you’re moving forward on your S-10.

Mike: Jeff, how does all of these data get summarized and analyzed for supporting documentation?

Jeff Wolf: Well, once you’ve reconciled the data, you’ll need to identify the patients in these specific buckets. The first thing you’ll need to do is identify the primary payers for that reimbursement calculations.

Then you’ll need to identify the transaction categories to identify the charity care versus the bad debt write-off amounts.

Be aware that a patient can end up in multiple categories—so, for instance, a Medicaid patient that could have a charity care write-off and could have a bad debt could end up in three different buckets as we’re walking through this.

What this means is you need to make sure you identify the transaction codes appropriately for charity versus bad debt so you can separately identify those and not count them twice on the listings.

Any patient that was written off in the current year that also had their services in the current year could be in the net reimbursement section as well as have patient responsibility that’s either is written off as charity or bad debt. So again, being aware of exactly what your transaction codes and putting them into the appropriate buckets is going to be very, very important.

In summary, it’s really, really critical to make sure that you look at the data categories, the transaction codes, putting them into the correct buckets based on the CMS guidelines. The quality and accuracy of your transaction codes in the patient accounting system will become more and more critical as we evolve through S-10.

Mike: And this is the third installment of our series around uncompensated care. We’ve previously covered bad debt and DSH. If you’d like to get our paper around uncompensated care to read more in-depth about all of those topics, you can go to Just click on the reimbursement button, and you’ll see the paper there along with a host of other resources available around Medicare reimbursement.

Jeff, thank you so much for joining us on the podcast today.

Jeff Wolf: It was a pleasure being here. Thank you very much.

The Hospital Finance Podcast


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