Criteria – Federal Requirements and CMS Policy

Section 13621 of the Omnibus Budget Reconciliation Act of 1993 amended section 1923 of the Social Security Act to limit DSH payments to a hospital’s incurred uncompensated care costs. Under section 1923(g) of the Act, the uncompensated care was limited to costs of medical services provided to Medicaid and uninsured patients less payments received for those patients excluding Medicaid DSH payments. The specific language contained in the Act, as amended, is as follows:

Section 1923…

(g) Limit on Amount of Payment to Hospital.---

(1) Amount of adjustment subject to uncompensated costs.---

(A) IN GENERAL.---A payment adjustment during a fiscal year shall not be considered to be consistent with . . . respect to a hospital if the payment adjustment exceeds the costs incurred during the year of furnishing hospital services (as determined by the Secretary and net of payments under this title, other than under this section, and by uninsured patients) by the hospital to individuals who either are eligible for medical assistance under the State plan or have no health insurance (or other source of third party coverage) for services provided during the year.

In a subsequent letter to State Medicaid Directors dated August 17, 1994, CMS provided further guidance in calculating hospital-specific DSH limits, stating that total DSH payments to a specific hospital may not exceed the sum of the hospital’s Medicaid shortfall plus the cost of uncompensated care provided to uninsured patients. The letter further stated that both inpatient and outpatient costs may be included in the DSH limit calculation, and provided a degree of flexibility by allowing the States to generally define the composition of appropriate costs as long as the appropriate Medicare upper payment limits were not exceeded.

Condition – DSH Payments Exceeded the DSH Limits

The Provider’s DSH payments exceeded the hospital specific limits imposed by section 13621 of the Omnibus Budget Reconciliation Act of 1993. The patient charges totaling $849,596 that did not qualify as uncompensated care for DSH funding purposes were reported by the Provider on Schedule F of its Medicaid hospital cost reports. The unallowable charges were, as follows:

Unsupported Charges. We identified total charges of $652,560 pertaining to missing patient records covering a 1 month time period and unavailable records relating to a single large account. The Ohio Provider agreement for all providers, except long-term care facilities, states that a provider must:

Maintain all records necessary and in such form as to fully disclose the extent of services provided and significant business transactions. The provider will maintain such records for a period of six years from the date of receipt of payment based upon those records or until any initiated audit is completed, whichever is longer . . . .

Although the Provider agreed that the missing records were unavailable, it believed that the accounting systems data, made available to us during the review, was sufficiently reliable to document a significant portion of the reported charges. We disagree. The Provider is responsible for maintaining and furnishing patient specific records to document and support its reported patient specific charges. The unsupported charges should be removed from the Provider’s cost report.

Duplicated Charges. We identified $109,768 of charges for three transactions that were mistakenly compiled twice in the transaction logs and duplicated on Schedule F. The Provider agreed that the duplicated amounts were reported in error. The duplicate charges should be removed from the Provider’s cost report.

Charges for Patient Bad Debt Recoveries. The Provider recovered $38,160 from patient accounts that were previously written off as uncollectable bad debts. All recoveries should have been offset against the reported uncompensated care amounts as a reduction to the reported charges. The Provider made aggregate adjustments to the transaction logs to reflect the total amounts that it believed were recovered against the uncollectable patient accounts. These adjustments were appropriately carried forward and reported through Schedule F. However, the Provider was unable to furnish any specific account or transaction data to support its adjustments. Consequently, we could not confirm which, if any, of the selected recovery amounts were actually included in the Provider’s aggregate adjustments. The identified amounts should be removed from the cost reports.

The Provider agreed that it was unable to furnish individual detail for the bad debt recovery, but believed that all recovered bad debt amounts had been appropriately included in its aggregate patient log adjustments. As previously cited, the Ohio Provider Agreement requires the Provider to retain all necessary records to disclose its significant business transactions. Since the reported charges were compiled based on the uncompensated care associated with specific visit and admission transactions, we believe that the amounts used to offset these charges should also be supported on a specific, or transaction oriented basis. The disclosure of only a total write-off amount fails to provide reasonable assurance that any specifically identified account recoveries were included in the aggregate adjustments. As a result, the identified amounts should be removed from the cost reports.

Overstated Charges Due to Accounting Errors. We identified $24,619 of overstated charges attributable to an error in adjusting an account balance and an accounting reconciliation error between the Provider’s accounting records and the Schedule F.

The Provider agreed that it incorrectly made an adjustment to an account balance of $20,520, but believed that the reconciliation error of $4,099 was based partially on an estimate and was not material. We disagree, noting that the Provider clearly designated the $4,099 as an “accounting error” in the account reconciliation support that was provided to us as part of the review. The identified amounts should be removed from the Provider’s cost report.

Inflated Charges for Billing Adjustments. The Provider increased the amounts of initially billed charges by $17,609 to inflate its billed amounts to the expected rate of Medicaid reimbursement for the same services. The Ohio Provider Agreement states that a provider must “. . . bill the Ohio Department of Human Services for no more than the usual and customary fee charged other patients for the same service.” The Provider believed that the upward adjustments to the charged amounts were appropriate, contending that the Omnibus Budget Reconciliation Act of 1993 payment limit is based on Medicaid reimbursement rates and that it is appropriate to increase its billed charges up to the Medicaid rate in order to determine the uncompensated care write-off.

We disagree, noting that CMS grants the States a certain level of flexibility in defining allowable costs, as long as these costs do not exceed the Medicare principles of cost reimbursement. Although the discretion to determine allowable cost or charge amounts resides with the State, it should not be interpreted to extend to the level of the individual provider. Accordingly, based on the requirements of the Ohio Provider Agreement, the charge increases are not allowable and should be removed from the Provider’s cost report.

Charges for Unallowable Items and Services. We identified $6,880 of charges for unallowable drugs, medical transportation, durable medical equipment, take-home supplies, and recreational therapy services. These charges were unallowable under Ohio’s Hospital Care Assurance Program pursuant to Ohio Code section 5101:3-2-02. The Provider agreed that the identified amounts were unallowable. The reported charges should be removed from the cost reports.

Cause – Provider DSH Limits Were Overstated Due to Unallowable Reported Charges

A hospital’s total DSH payments may not exceed its hospital-specific DSH limit, calculated to be the sum of the hospital’s Medicaid shortfall plus the costs of uncompensated care provided to uninsured patients. The Provider received DSH payments equal to 100 percent of its calculated limit. The costs associated with the charges that did not qualify as uncompensated care for DSH funding were included in both the limit and the payments to the Provider, resulting in an overstated DSH limit and a corresponding overpayment.

During the review period, Ohio calculated the costs of uncompensated care by converting reported charges to costs through the application of hospital-specific inpatient and outpatient cost-to-charge ratios developed by Ohio from the Provider’s cost report data. The DSH limit and payment calculations were based on current data that was not subject to inflationary adjustment.

Effect – Provider DSH Overpayment

Based on the Provider’s cost allocation process, about $407,000 of the $849,596 in identified charges was allocated to the “non-Medicaid uninsured” charge categories. Using the applicable cost-to-charge ratios, the $407,000 of inappropriately allocated charges converted to $197,000 in costs that did not qualify for DSH payment. The Federal share was about $115,000.