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DSH Update

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PHBV Partners LLP

Effective January 2, 2012, Clifton Gunderson’s Team Health Care has become PHBV Partners LLP. In addition, Clifton Gunderson and LarsonAllen, ranked as two of the nation’s top 20 certified public accounting and consulting firms have merged to form CliftonLarsonAllen LLP (CLA). PHBV Partners is a separate legal entity that will service our regulatory health care clients at the Local, State and Federal Government levels.

The final rule from the Centers for Medicare and Medicaid Services (CMS) on Disproportionate Share Hospital (DSH) payments was issued on December 19, 2008.

Is your state ready?

PHBV Partners has spent the last four years developing effective DSH compliance procedures and working hands-on to prepare states for the DSH changes. During this time, we have learned that many states are not only insufficiently prepared for the impending DSH changes, but also do not fully understand the dramatic impact they may have on state budgets.

Following is a brief overview of the DSH program, its impending changes, and what you can do to prepare for its implementation.

History of DSH

The Medicaid Disproportionate Share Hospital Payments Program was established by Congress in 1981 to assist hospitals that serve a large number of Medicaid and low-income patients. Through the DSH Program, a state pays the hospital a DSH payment in addition to the standard Medicaid payments. The state then makes a claim for the Federal Financial Participation (FFP) share from the Federal government for reimbursement.

In order to be considered an eligible DSH Hospital, the Medicaid hospital inpatient rate must be one percent or higher for reimbursement, have two staff obstetricians, and serve a certain amount of Medicaid or low-income patients. States have flexibility with these guidelines as long as they meet the minimum requirements. Each state's DSH Program should be addressed in their state plan.

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The Problem with DSH

Many states began using intergovernmental transfers and other indirect ways to finance the state's portion of the DSH payment, in order to avoid using actual state funds for payment. As a result Congress has enacted numerous changes to combat these financing strategies.

Among the changes were provisions to set certain limits on the FFP for state DSH payments and the requirement of annual reports to the federal government. On Dec. 8, 2003, the Medicare Prescription Drug Improvement and Modernization Act of 2003 (MMA) was enacted to require additional specific information from the states about their DSH program and require each state to have their DSH payment program independently audited. A state, therefore, must submit an independent, certified audit to CMS as a condition to receive FFP for the DSH program payments.

The Department of Health and Human Services (DHHS) Office of the Inspector General (OIG) issued a report which focused on an audit of DSH in 10 selected states. The report revealed that nine of the 10 states did not comply with the DSH limits and, as a result, DSH payments exceeded the hospital specific limits by approximately $1.6 billion. DHHS seeks to recoup much of that overpayment.

The OIG proposed that CMS should provide definitive guidelines with a uniform DSH standard for all states. In addition, they proposed that states should be required to produce an annual report and an independent certified audit. On Aug. 26, 2005, CMS published the proposed rule to implement section 1001(d) of the MMA, which established new reporting and auditing requirements for the state DSH payments and asked for public comments. The final rule will be communicated to all states via the Federal Register. When this occurs, states will be responsible for compliance with DSH payment guidelines, including verification that:

  • The reduction of uncompensated care costs reflect the total amount of claimed DSH expenditures.
  • DSH payments to hospitals comply with hospital-specific DSH limits.
  • Only uncompensated care costs of providing inpatient and outpatient hospital services to Medicaid eligible individuals are included in the hospital specific DSH payment limit.
  • All Medicaid payments, including supplemental payments, are accounted for in the calculation of DSH payment limits.
  • The state has documented and retained a record of all costs and claimed expenditures under the Medicaid Program, as well as uninsured costs and payments used in determining the DSH payment adjustments.

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What Can You Do?

Once the final rule is released, our experts will issue a summary of the rule, including highlights and key points to assist you in understanding how your state will be affected. Based on our work with various states, we remind you that there are several things that you can do to prepare for the final rule:

  • First and foremost, familiarize yourself with the changes that are on the horizon by visiting the DSH Documentation Library and the Links to Other Key Information.
  • Determine how you will comply with the independent audit requirements (outlined on this site), as well as the development of an audit program for hospitals that is commensurate with the level of risk and funds involved with DSH payments and all cost-based hospital reimbursement.
  • Evaluate the validity of hospital-specific costs for the uninsured that were used to calculate DSH limits and payments in 2005 and subsequent years.
  • Evaluate the Medicaid shortfall calculations that were used in determining hospital-specific DSH limits for all hospitals from 2005 to date. Many hospitals have actually profited from Medicaid once supplemental payments were included as required.
  • Identify the differences between the requirements in your approved State Plan and the requirements contained in the draft DSH audit rule.
  • Engage the hospital industry in your state to learn the industry’s perspective on DSH compliance.
  • Contact us for additional information.

PHBV Partners is at the forefront of DSH issues. Our unique experience and qualifications allow us to provide you with unparalleled service on matters related to DSH. In fact, our DSH audit efforts on behalf of state Medicaid clients positions us as the only CPA firm in the nation with the unique experience, proven audit programs, and trained government health care professionals to assist you with this high-profile, complex reimbursement process.

Our practical experience has allowed us to develop comprehensive best practices, including the identification of key issues for hospitals that are overdue for an audit, and the identification of key issues that will impact states in complying with this rule. Our professional resources and DSH experience will significantly benefit your state when complying with the DSH changes.

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DSH Documentation Library

One of the best ways to prepare yourself for the future of the DSH program is to educate yourself about its past. Below are links, in chronological order, to important DSH documents that span nearly a decade.

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Links to Other Key Information

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