Uncompensated care describes an organization’s total charity care and bad debt — and it is growing in importance. Several government reimbursement mechanisms are already incorporating it, and policymakers and other stakeholders see it as a metric to ensure nonprofit hospitals are doing enough to warrant continued tax-exempt status. Now, more than ever, it’s important to make sure your S-10 is accurate when you submit your cost report.
What’s the difference between charity care and bad debt?
There is some confusion on whether a service falls under charity care or bad debt. In general terms:
- Charity care is the provision of a service for which compensation is not expected due to the organization’s determination of an individual’s inability to pay.
- Bad debt occurs when there is an expectation and ability to pay for the provision of a service, but all or a portion of the billed amount is not paid.
Inaccurate reporting of uncompensated care data on an organization’s Worksheet S-10 has a direct financial implication for nonprofit hospitals.
While both are rolled up into uncompensated care, it is important to accurately track and report each on your cost report to ensure your organization receives full reimbursement, accurately complies with reporting requirements, and demonstrates its full community benefit commitment.
Worksheet S-10 affects reimbursements
Worksheet S-10 is part of a hospital’s cost report and is used by the Centers of Medicare & Medicaid Services (CMS) to determine the level of uncompensated care provided by a hospital. Both Prospective Payment System (PPS) and Critical Access Hospitals (CAHs) complete the S-10. Because it is a source of uncompensated care data for the nation’s hospitals, multiple government health care programs use the data reported on the S-10 for payment purposes. Historically, instructions for completion of this worksheet have been unclear, and minimal audits of data reported on S-10 have taken place. But in the past year, CMS updated and expanded on its S-10 guidance under Transmittal 11, and it is expected that audits of S-10 data will take place in the near future.
Medicare Disproportionate Share Hospital Payments
The Affordable Care Act (ACA) included a provision phasing down hospital Medicare Disproportionate Share Hospital (DSH) payments. This was based on the premise that the ACA would reduce the levels of uninsured and, therefore, uncompensated care. DSH payments are available to PPS hospitals that treat disproportionately larger shares of Medicaid and uninsured populations. Under the ACA policy, two DSH funding pools were created — a 25 percent and a 75 percent pool. The latter pool of DSH dollars is impacted by uncompensated care levels reported on a hospital’s S-10.
The 75 percent DSH payment pool is a fixed amount of monies to be allocated among all DSH eligible hospitals. This pool is nationally distributed to qualifying hospitals based on three factors, one of which is a hospital’s level of uncompensated care (Factor 3). CMS began incorporating S-10 uncompensated care data into the determination of Factor 3 with the 2018 Medicare Inpatient Prospective Payment System (IPPS) final rule, in which CMS indicated it would use a three-year average to determine Factor 3, including use of S-10 uncompensated care data for one of three years. In the FY 2019 final IPPS rule, CMS uses S-10 data for two of the three years of this average. (The third year comes from a combination of Medicaid days from FY 2013 cost reports and FY 2016 SSI ratios.) Beginning with FY 2020, only S-10 data will be used to determine Factor 3. Therefore, a hospital’s DSH payment will be solely based on the level of uncompensated care reported on its Worksheet S-10.
Medicare payments will be held until an acceptable cost report is submitted
In the FY 2019 final IPPS rule, CMS finalized the requirement that effective for cost reporting periods beginning on or after October 1, 2018, DSH-eligible hospitals reporting charity care and/or uninsured discounts must submit a detailed listing of charity care and/or uninsured discounts which correspond to data reported on the Medicare cost report. Data elements include information, such as: patient name, dates of service, insurer (if applicable), and the amount of charity care and/or insured discounts given to the patient. If the detailed listing is not submitted, the cost report will be rejected due to lack of documentation.
Medicaid DSH payments
Each state must report uncompensated care data for its facilities that receive Medicaid DSH payments. The state can choose to use the Medicare cost report Worksheet S-10 or a state specific form-set to obtain the hospitals’ costs of providing uncompensated care. The reporting of uncompensated care and other cost reporting data could impact Medicaid reimbursement via its role in the determination of the Medicaid shortfall.
EHR incentive payments
Under the American Recovery and Reinvestment Act, the Medicare and Medicaid Electronic Health Care Record (EHR) Incentive Programs provided incentive payments to eligible professionals, eligible hospitals, and CAHs to adopt, implement, upgrade, or demonstrate meaningful use of certified EHR technology. A higher incentive payment is available for hospitals that provide a greater amount of charity care. That charity care number comes from Worksheet S-10 on the Medicare cost report. Failure to have accurately and diligently reported charity care on Worksheet S-10 will result in lower incentive payments.
S-10 may be used even more in the future
Because Worksheet S-10 encapsulates many key data points that roll up into an entity’s uncompensated care levels, lawmakers may look to the S-10 for future reimbursement or reporting changes.
Take the 340B drug discount program as an example. Certain qualifying entities under the program, including DSH hospitals, can access pharmaceuticals at a reduced cost. But lately there has been a concerted push by the pharmaceutical industry to limit the program. This, in part, is driven by the pharmaceutical industry’s opinion that the program has grown too large, and that hospitals that receive the benefit should provide certain levels of charity care or uncompensated care. More than a dozen pieces of legislation have been introduced or drafted in Congress to date, and many would require 340B hospitals to report levels of uncompensated care, charity care, and other financial data. Should any of these proposals gain traction, it is possible that the S-10 Worksheet would be the vehicle from which to extract this data.
In addition, some members of Congress have been critical of hospitals’ tax-exempt status, citing insufficient levels of community benefit to warrant the exemption. It would not be a stretch for one of those individuals to look to the S-10 when developing new reporting requirements or payment policies related to tax-exempt status.
Tax implications and 501(r)
It is clear that uncompensated care data is important for receiving full reimbursement under certain policies; however, S-10 data also plays a part in an organization’s IRS Form 990.
New requirements under section 501(r) were imposed on charitable hospital organizations under the ACA. A hospital organization described in section 501(r)(2) would not be treated as a tax exempt organization described in section 501(c)(3) unless that organization met the requirements of sections 501(r)(3) through 501(r)(6). These sections impact a charitable hospital organization’s charity care and bad debt policies, along with any collection efforts that can be made on an individual’s unpaid hospital bill.
- Section 501(r)(4) — Requires a hospital organization to establish a written financial assistance policy (FAP) and a written policy relating to emergency medical care designed to encourage complete transparency related to financial assistance.
- Section 501(r)(5) — Requires a hospital organization to not use gross charges and to limit amounts charged for emergency or other medically necessary care provided to individuals eligible for assistance under the organization’s FAP to not more than the amounts generally billed to individuals who have insurance covering such care.
- Section 501(r)(6) — Requires a hospital organization to make reasonable efforts to determine whether an individual is FAP-eligible before engaging in extraordinary collection efforts. While all of 501(r) must be followed, it is important to pay attention to 501(r)(6) and its specific regulation under Reg. 1.501(r)-6 as the most important to understand and integrate into an organization’s policies.
Each underlying financial assistance, charity care, and patient discount policy can intersect with the Worksheet S-10. Failure to have a comprehensive approach to these underlying policies can result in lost reimbursements and negatively impact an organization.
All departments must understand S-10 data requirements
Uncompensated care is not solely a business office function. While the data initially enters the system in the patient financial services or business office, collecting, understanding, and reporting it extends across the organization to finance, accounting, tax, legal, information technology, reimbursement, and even government and public relations functions. In order to ensure your organization has connected all the dots in terms of reporting, accounting, compliance, and optimization of your organizations’ reimbursement, it takes a broader approach.
As you assess your approach to Worksheet S-10s and uncompensated care data, here are a few questions to measure whether you are on track.
- Who “owns” your uncompensated care function? Is it a cross-functional team? An individual? Is that sufficient?
- Does your entire organization understand your policies and how those impact cost reports, reporting, reimbursements, community benefit, and stakeholder or public perception? From patient financial services to IT to public relations to management — are your policies clear?
- Are all of your policies in alignment to ensure accurate collection and reporting of uncompensated care?
- Are you confident in your data’s accuracy? What education and compliance measures do you have in place to ensure that accuracy continues year after year?
- Have you leveraged the data analytic capabilities of your S-10s?
How we can help
Uncompensated care touches many areas within a health care organization and has significant regulatory, reimbursement, and even stakeholder and public relations implications. In addition to helping you complete your cost report and Worksheet S-10, CLA can assist you in developing a robust process for the collection and capture of the necessary data to help position your organization for success.