MEDICAID
SUPPLEMENTAL PAYMENTS
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
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Federal Authorization
DSH Authorization
• 42 CFR § 447 Subpart E
UPL Authorization
• 42 CFR §447.272 – Inpatient, NF, ICF/MR
Services
• 42 CFR §447.321 – Outpatient, Clinic Services
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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.
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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
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Keys to the UPL Calculation
• Reasonable estimate of Medicare payment(s)
• Cost reporting year(s)
• Inflation index
• Activity index
• Payment(s) used
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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.
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Reasonable estimate of Medicare
payment(s)
• 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
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Payment(s) used in the UPL
Calculation
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).
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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.
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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
Idaho.
• This years UPL will be based on the calendar
year 2010.
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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.
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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
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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
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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
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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.
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How are Provider Assessment
Rates Calculated
Total General Funds Required
Divided by
Net Patient Revenue from All Cost Reports
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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.
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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).
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Federal conditions for DSH
Participation
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.
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How is DSH information
Gathered?
• 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.
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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
uninsured.
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The DSH Calculation can be a ZeroSum 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.
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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
over/underpayments.
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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.
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How are DSH Payments Financed?
The financing options for state to use for DSH
payments are the same as those for UPL
payments.
In 2011 the State will used provider assessment of
approximately $7.2 million to fund the State share
of DSH payments
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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.
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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.
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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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Questions?
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