Hospital leaders across the country have been closely watching the healthcare proposals coming out of Washington over the last several months. Although the bill that would cuts Medicaid and result in increased uncompensated care for hospitals stalled on Capitol Hill, a new CMS rule is raising the alarm about uncompensated care once more.

New, Controversial Uncompensated Care Payments Formula

The Medicare Inpatient Prospective Payment System includes a new formula for calculating uncompensated care payments. If adopted, it could result in less uncompensated care payments for hospitals already struggling with thin margins. The formula uses Worksheet S-10, also called Medicare Cost Reports, to calculate Disproportionate Share Hospital (DSH) payments to facilities that serve low-income populations.

The American Hospitals Association (AHA) Executive Vice President Tom Nickels released a statement about the proposed rule. “We had urged the agency to delay its [S-10] use in calculating DSH payments by one year to further educate hospitals about how to accurately and consistently complete the S-10, and also implement a stop-loss policy and audit process.”

The proposed rule in the Federal Register stated: “We anticipate that the final rule would affect certain providers through the reduction of state DSH payments. We cannot, however, estimate the impact on individual providers or groups of providers.”

Medicare Expansion and Uncompensated Care Costs

FY2018 uncompensated care payments for all hospitals would be $2 billion less than the current fiscal year, according to the CMS, and would drop $43 billion between FY2018 and FY2025. In 2012, 6.1% of community hospitals’ total expenses went to uncompensated care. By the year 2015, thanks partly to Medicaid expansion under the Affordable Care Act, that percentage dropped to 4.2%.

The Kaiser Family Foundation (KFF) study found that: “The cost of uncompensated care has declined among hospitals in Medicaid expansion states, while such costs have remained flat among hospitals in states that did not expand Medicaid.”

These findings were backed up by an Urban Institute report: Data from 2015 showed that Medicaid expansion increased revenue per hospital by $5 million in expansion states, reduced uncompensated care costs by $3.2 million per hospital and improved average operating margins by 2.5 percentage points.”

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