The OIG has focused its attention on the Medicaid Disproportionate Share Hospital (DSH) Payment Program in its annual Work Plan for the past several years. This year is no different. Prompted by rapidly growing state DSH expenditures, the OIG highlighted several areas it is focused on this year.

The DSH requirement mandates additional funds from state Medicaid programs for hospitals that serve a disproportionate number of low-income patients—known as a DSH payment adjustment—in order to supplement their revenue stream.

CMS gives each state significant leeway in both defining DSH hospitals and its methods of DSH payment.

However, states must provide, at the very least, DSH payments to hospitals that have a Medicaid inpatient use rate at least one standard deviation above the mean—a figure determined using a ratio of Medicaid inpatient days and total inpatient days—or a low-income utilization rate of more than 25%.

“The first thing that providers need to do is review and understand the definitions and regulations in their state,” says Eric Weatherford, an attorney at Brown McCarroll, LLP, in Dallas. “Some DSH rules can seem counterintuitive, but once providers are familiar with those data elements, they can start developing the right procedures to review them.”

OIG items

In its 2008 Work Plan, the OIG states that it will examine several aspects of the DSH program. First, it plans to review hospital eligibility for Medicaid DSH payments to ensure funds go to hospitals that meet state and federal requirements. “During several prior reviews, we found that states had made DSH payments to hospitals that did not meet the eligibility standards,” the OIG says. “We will determine whether states are appropriately determining hospitals’ eligibility for Medicaid DSH payments.”

In addition, the OIG says it will review states’ use of DSH payments to assess the amount of federal funds being used for individuals in state-run mental institutions. “DSH payments to an individual hospital may not exceed that hospital’s uncompensated care costs,” the OIG says. “Some states have provisions in their state Medicaid plans that allow DSH payments to hospitals for the cost of services provided to persons not covered by the Medicaid program, including individuals between the ages of 21 and 64 residing in Institutions for Mental Disease.”

Provider strategies

For hospitals, the benefits of becoming familiar with state-specific Medicaid DSH requirements are twofold, Weatherford says. First, it will help them support the data they report. Second, it will allow hospitals to verify the information states use in calculations. In that respect, hospitals can actually check on the state to ensure accuracy, he adds.

For example, in Texas, the Department of Health and Human Services issues a Medicaid DSH qualification report, and hospitals have a limited amount of time to contest the data.

“If you understand the data elements that you report to the state, then you can establish some protocols internally to make sure you represent those accurately,” Weatherford says. “At the same time, the state uses that data to calculate your DSH status, so you can use that information to make sure the state correctly reports it.”

Weatherford says that, every year, at least one of his clients identifies incorrect data in the DSH qualification report and appeals for changes.

Future oversight

OIG audits like those in Missouri and New Hampshire will likely continue, Weatherford says, and avoiding scrutiny won’t be an option. The best strategy is to think of DSH payments like any other area of compliance, which means identifying the people who compile DSH data, understanding the method of capture, and adding appropriate controls, he says.

“If, during the course of an internal audit, providers determine their methodology is flawed, they can analyze the data to see if anything that was reported incorrectly had an impact on their DSH status,” Weatherford says. “In addition to needing auditable data to verify state reports, maintaining vigilance as to how DSH-related data is developing will allow hospitals to estimate their future DSH status and budget accordingly.”

Recent DSH audits outline path for providers

One of the best sources of guidance regarding the Medicaid Disproportionate Share Hospital (DSH) Payment Program requirements are sample audits from the OIG. Although each state differs in the manner in which it calculates eligibility for DSH payments—and the OIG audits take this into account—they are still a valuable tool for all providers because they demonstrate potential target areas.

Take the following recent audits as examples of what to watch for and what to audit for when it comes to ensuring your compliance with DSH reimbursement rules.

Missouri

In a 2007 report, “Review of Missouri’s Determination of Medicaid Disproportionate Share Hospital Eligibility for State-Owned Institutions for Mental Diseases [IMD],” the OIG assessed Missouri’s provision of mental health services to see whether the state had correctly determined DSH payment eligibility during 2003–2005.

The OIG found that although Missouri had correctly identified seven state-owned IMDs as eligible for DSH payments, the hospitals’ Medicaid inpatient utilization rate (MIUR) had been calculated incorrectly. This was partially because the state was classifying individuals who had been sentenced to time in an IMD as patients rather than as incarcerated individuals.

“The state incorrectly computed the MIURs because it did not comply with federal regulations concerning the exclusion of inpatient days related to unallowable age groups and incarcerated individuals,” the OIG said in the report. “In addition, the state included unallowable inpatient days related to accounting errors for the [fiscal years] 2003–2005 DSH eligibility determination. The state also lacked adequate controls concerning the acquisition, review, and maintenance of contemporaneous documentation to support the MIUR calculations.”

Although the OIG found that Missouri could not support its MIUR calculations, the MIURs were never below the 1% threshold—the number needed to be a Medicaid DSH. Therefore, all seven hospitals were still eligible for DSH payments. However, in the future, problematic MIUR calculations could lead the state to incorrectly categorize IMDs as DSH hospitals, the OIG says. In order to improve the situation, the OIG recommended that Missouri:

Comply with federal regulations concerning the exclusion of unallowable inpatient days from the MIUR calculations

Strengthen controls to eliminate accounting errors

Acquire, review, and maintain contemporaneous documentation to support the original Medicaid DSH MIUR calculations

In response, Missouri said it would increase controls to ensure only allowable patient days were used in calculating the MIURs. The state commented on the OIG’s interpretation of patients as incarcerated individuals, arguing that IMDs were not penal institutions, and individuals who had been sentenced to a period of time in a state-run psychiatric hospital were not guilty by reason of their illness.

New Hampshire

In a second 2007 Medicaid DSH audit, the OIG exam-ined New Hampshire’s 2004 state agency claims to determine whether they were in compliance with federal and state DSH requirements.

In its review, the OIG concluded that of the more than $194 million that the state agency claimed during fiscal year 2004, only about $123 million was allowable—leaving more than $70 million in unallowable payments.

The government referenced a 1994 letter from CMS to state Medicaid directors, which stated that costs of services included in a hospital’s DSH limit could not be greater than the amount that is allowed under Medicaid’s principles of cost reimbursement.

“Specifically, the cost-to-charge ratios that the state agency used in determining allowable costs were inflated because they overstated costs by including unallowable costs,” the OIG said. “We attribute the excess DSH payments to the state agency’s lack of policies and procedures to ensure that its methodology for developing the cost-to-charge ratios used to calculate hospital-specific DSH limits complied with federal requirements and the state plan.”

The government recommended that New Hampshire’s state agency refund more than $35 million to the federal government, work with CMS to evaluate DSH payments distributed after the audit, and craft policies and controls to accurately calculate DSH payments and stay in compliance with requirements.

In response, New Hampshire’s state agency disagreed with the OIG’s findings and recommendations. It argued that Medicaid principles of cost reimbursement, which the OIG used in its review, were not laws and should not be taken into consideration when determining DSH limits.

In a letter to the OIG, John Stephen, New Hampshire’s Department of Health and Human Services commissioner, stated:

New Hampshire’s methodology for calculating the costs of uncompensated care was designed to take [into] account the real costs of treating the low-income individuals whom the DSH program is designed to assist. The state’s current methodology has been in place for over 10 years. In all these years, the state has been completely forthright about the method it employs to calculate DSH payments, and CMS has never challenged the state’s approach. CMS and the state have worked together to make certain changes to the DSH methodology and other components of state law, and the state is always willing to cooperate with CMS concerning possible future changes, but it is improper to propose a retroactive disallowance as to an approach that we have always understood to be an appropriate means of determining the costs of serving Medicaid and the uninsured.