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   Larry E. Tisdale, V.P. of Finance
      Idaho Hospital Association
 Types of Supplemental Payments

Medicaid supplemental payments are classified
into two simple categories:

• Disproportionate Share Hospital (DSH) Payments
      Medicaid DSH payments

• Non-DSH Payments
     Upper Payment Limit (UPL) payments

   Federal Authorization

DSH Authorization
• 42 CFR § 447 Subpart E

UPL Authorization
• 42 CFR §447.272 – Inpatient, NF, ICF/MR
• 42 CFR §447.321 – Outpatient, Clinic Services

        What is the Medicaid UPL

The federal government allows states to reimburse
hospitals for uncompensated care provided to Medicaid
participants in an amount equal to what Medicare would
have paid. A UPL calculation is made for both inpatient and
outpatient payments.

     The UPL Gap is easily stated as:
What Medicare would have paid – Medicaid payments.

 The UPL is NOT a Zero-Sum Gain

The amount of calculated UPL “gap” in one
hospital’s calculation does not take away from
another hospitals UPL payment

     Keys to the UPL Calculation

• Reasonable estimate of Medicare payment(s)

• Cost reporting year(s)

• Inflation index

• Activity index

• Payment(s) used
   Idaho Medicaid State Plan
on Estimated Medicare Payments

While the Medicaid state plan designates using
estimated actual costs as the “reasonable” method
for estimating Medicare payments, the calculation
of the estimated Medicare payments is not
specified in the state plan.

 Reasonable estimate of Medicare

• The method for calculating what Medicare would
  have paid is not fixed in federal code or rule.

• Several methods are commonly used:
  – Forecast for the current fiscal year
  – DRG estimate for payments
  – Estimated actual cost (retrospectively)*

                  *Currently used by Idaho Medicaid

     Payment(s) used in the UPL
Two calculation methods have been used in Idaho
to arrive at the Medicaid payments element of the
UPL equation.

1.Actual payments for the calendar year.

2.Payments for cost reporting years indexed for
inflation (adjusted for patient service activity).

         Cost reporting year(s)

• The cost information used in the UPL calculation
  comes from audited cost reports.

• This year UPL calculation will use the most
  recently audited cost reports from 2008, 2009
  and possibly 2010.

             Index for Inflation

• Because each hospital will used there own cost
  reports for estimating Medicare costs, they must
  all be indexed forward to the year for which the
  UPL is being calculated.
• The UPL is about the providers not the State of
• This years UPL will be based on the calendar
  year 2010.

 Index for Patient Service Activity

Because the number of patients seen and the
number of hospital days will not be the same for
the cost reporting years and the calculation year,
the costs must be adjusted for differing level of
patient activity.

   How the UPL Payments Financed?

The cost of UPL payments are split between the
federal government and state governments based
on each state’s federal financial participation rate
(also known as FMAP)
            States may use:
1.State General fund appropriations
2.Inner-Government Transfers (IGTs)
3.Certified Public Expenditures (CPEs)
4.Provider Taxes/Assessments

      Inner-Governmental Transfers

• Used primarily for county and hospital district
  owned facilities.

• The “payments” can directly mirror the State
  general funds necessary to fund the state’s
  share of UPL payments

 Certified Public Expenditures (CPEs)

• Counts expenditure of government entities as
  the State’s participation if the entities have
  taxing authority and can show that the
  expenditures have not already drawn down
  other federal matching dollars.
• Used primarily for county and hospital district
  owned facilities.
• The “payments” can directly mirror the State
  general funds necessary to fund the state’s
  share of UPL payments
      Provider Taxes/Assessments

• Currently CMS limits provider taxes to 5.5%.

• Cannot directly mirror FMAP rates.

• Must be broad based (at risk).

• Voluntary contributions are prohibited.

How are Provider Assessment
      Rates Calculated

      Total General Funds Required
               Divided by
Net Patient Revenue from All Cost Reports

    Are Provider Taxes Popular?

According to a study performed by The Kaiser
Commission on Medicaid and the Uninsured:

• In 2011 34 states will have provider taxes in
  place for hospitals.

• In 2011 47 states will have some form of
  provider taxes in place.

       Medicaid DSH Payments

• Medicaid DSH payments were created by the
  federal government to make sure that states
  provided adequate payments to hospitals for
  providing care to uninsured, indigent and
  Medicaid patients (state are not required to have
  UPL programs).

       Federal conditions for DSH

1. At least 1% of a facilities total inpatient days
   must be attributable to Medicaid patients; and

2. If a hospital provides obstetrical services after
   Dec 21, 1987 the hospital must have at least
   two obstetricians with staff privileges who agree
   to serve Medicaid beneficiaries.

       How is DSH information
• The unfunded care identified for the DSH
  payment calculation is reported annually on the
  “DSH Audit Survey”

• With Medicaid Reimbursement at 100% of cost
  (101% for CAHs) and the UPL payments
  accounted for in the DSH calculation, Sections
  “D” and “E” of the DSH Survey are critical to
  your DSH allocation.

            Sections “D” & “E”

Sections “D” and “E” account for unfunded care for
Dual (Medicare and Medicaid) covered crossover
claims, out of state Medicaid patients and the

   The DSH Calculation can be a Zero-
         Sum Gain Calculation

Because the allotment of federally available DSH
funding is set each year as a fixed amount of
money, any hospital that does not maximize its
DSH calculation leaves money on the table to be
allocated to other hospitals.

                Medicaid DSH audits

• For state fiscal year 2005 all states must complete audit of hospitals
  DSH payments and allowable expenses.

• Use audit findings for rate year 2005 – 2010 to prospectively adjust
  DSH payments.

• The States must use audit findings for rate year 2011 to determine

     How are the Payments Calculated

• The total of all Medicaid DSH payments is based
  on a lump-sum distribution from the federal
  government for each state.

• The distribution of DSH payments (federal plus
  State matching funds) is distributed based on
  Medicaid patient days after mandatory DSH
  payments* are allocated.

* Mandatory payments are made to providers whose Low-Income Utilization Rate (LIUR)
is greater than 25% or exceed one standard deviation.
  How are DSH Payments Financed?

The financing options for state to use for DSH
payments are the same as those for UPL

In 2011 the State will used provider assessment of
approximately $7.2 million to fund the State share
of DSH payments

 Are Provider Taxes Claimable Costs?

• If provider taxes directly attributable to
  supplemental payments are less than the
  payment received, the difference is an
  includable cost on the cost report.

• Provider taxes assessed to balance the State’s
  general fund balance are claimable.

     Hospital Specific DSH “Gaps”

The amount of DSH gap is calculated for each
hospital the qualifies for DSH funding.

This is very much like the UPL gap, but not all of
the gap will be funded for each hospital.

What are the Known Political Risks?

• Medicaid will still need the $32 million per year
  in hospital provided budget savings in 2013.
• Federal legislation may reduce or eliminate
  provider taxes/assessments.
• Automatic provider cuts for Medicare payments
  are part of the $1.2 trillion in automatically
  triggered budget reductions.
• Both Medicare and Medicaid DSH payments
  are schedule to be reduced by PPACA in 2014.


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