In a notice posted on its internet site on Wednesday, July 7, 2004, the Centers for Medicare and Medicaid Services ("CMS") admitted that its prior statement regarding the treatment of Medicare Part A exhausted days for the disproportionate share hospital ("DSH") payment calculation was incorrect. http://www.cms.hhs.gov/providers/hipps/dual.asp.

This announcement has significant implications for DSH hospitals. A hospital's DSH payment is calculated using a fraction known as the disproportionate patient percentage. The disproportionate patient percentage is the sum of two fractions: the Supplemental Security Income ("SSI") fraction and the Medicaid fraction. The SSI fraction is the number of patient days attributable to patients who were entitled to both Medicare Part A and to SSI divided by the number of patient days attributable to patients who were entitled to Medicare Part A benefits. The Medicaid fraction is the number of patient days attributable to patients who were eligible for Medicaid but not entitled to Medicare Part A divided by the total number of patient days. In last year's proposed In patient Prospective Payment System ("IPPS") rule, CMS stated that patient days occurring after a beneficiary's exhaustion of Part A coverage "are counted" in the SSI fraction. The agency also proposed to "change" its "policy" to permit hospitals to count these days in the numerator of the Medicaid fraction, when the patient is dually-eligible for Medicare and Medicaid.

CMS then deferred implementation of this proposal in the final IPPS rule, purportedly due to the volume of comments received. In Wednesday's web site posting, CMS admitted that its prior statement is incorrect and that "[o]ur policy has been that only covered patient days are included in the Medicare fraction."

In plainer English, CMS has acknowledged that Part A exhausted days never have been counted in the SSI fraction, despite prior rulings and statements asserting that they were. Some intermediaries interpreted last year's proposed rule to mean that dual-eligible Part A exhausted days could not be counted in the Medicaid fraction because those days are counted in the SSI fraction. CMS is expected to make an announcement regarding the treatment of dual-eligible Part A exhausted days in the August IPPS rule. Wednesday's announcement that Part A exhausted days were never included in the SSI fraction raises issues for all open cost reporting periods.

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