United States: PRRB Orders Fiscal Intermediary to Recalculate Hospital’s Medicare DSH Percentage

Action: On March 17, 2006, the Provider Reimbursement Review Board (the "PRRB") issued a decision in Baystate Medical Center v. Mutual of Omaha Insurance Company, finding that the determination of the hospital’s Medicare DSH ("DSH") percentage was incorrect. It ordered the fiscal intermediary to recalculate the hospital’s DSH percentage in a manner consistent with the Medicare statute and regulations.

Impact: The decision is likely to have a positive impact on the many individual and group appeals challenging the calculation of the DSH percentage currently pending before the PRRB.

Effective Date: Immediately; however, the CMS Administrator has notified the parties that he will review the PRRB’s decision. Following his review, the CMS Administrator may affirm, reverse, or modify the PRRB’s decision, or remand the case to the PRRB for further action.

On March 17, 2006, the Provider Reimbursement Review Board (the "PRRB") issued its decision in Baystate Medical Center v. Mutual of Omaha Insurance Company ("Baystate") in which the PRRB concluded that the methodology used by the Centers for Medicare & Medicaid Services ("CMS") to calculate the Medicare DSH percentage, for hospitals entitled to the DSH payment adjustment, was inaccurate. The PRRB found that: (1) there is no Medicare statute or regulation that prevents the recalculation of the DSH percentage, and (2) the statute and regulations require CMS to calculate the DSH percentage in an accurate manner.

The PRRB remanded the case to the fiscal intermediary to recalculate the hospital’s Medicare DSH percentage in a manner consistent with the PRRB’s decision.

Under Section 1886(d)(5)(F) of the Social Security Act (the "Act"), hospitals that serve a disproportionately high percentage of low income patients are entitled to receive Medicare Disproportionate Share Hospital ("DSH") payments.

The most commonly used method for a hospital to qualify for the DSH payment is based on a complex statutory formula under which payment is based on the level of the hospital’s DSH patient percentage, i.e., the sum of two fractions (expressed as a percentage): the "Medicare fraction" and the "Medicaid fraction." The Medicare and Medicaid fractions are added together to determine if the hospital is entitled to receive DSH payments and, if so, the amount of such payments. The dispute at issue in Baystate involved the calculation of the hospital’s Medicare fraction.

The Medicare fraction is also often referred to as the "SSI fraction" because it captures the number of Medicare beneficiaries who are also eligible for Supplemental Security Income ("SSI") benefits under the Act. The Medicare fraction is computed by dividing the number of patient days for patients who were entitled to both Medicare Part A benefits and SSI benefits (the numerator of the Medicare fraction) by the total number of patient days for patients entitled to benefits under Medicare Part A (the denominator of the Medicare fraction).

In order to calculate the numerator of the Medicare fraction, CMS obtains a data file from the Social Security Administration ("SSA") that includes a list of eligible SSI recipients (the "SSI file"). CMS then matches information from the SSI file against its own Medicare Part A entitlement information (contained in the Medicare Provider Analysis and Review ["MEDPAR"] file) to determine the number of Medicare/ SSI days for a particular hospital in a particular federal fiscal year. The denominator of the fraction is calculated by CMS based on Medicare claims data. CMS then notifies the hospital and the fiscal intermediary of its calculation.

Baystate, located in Springfield, Massachusetts, filed an appeal with the PRRB challenging the accuracy of CMS’ calculation of the hospital’s Medicare fraction for the fiscal years ended September 30, 1993, 1994, 1995 and 1996. Baystate alleged that its Medicare fraction was understated because both the SSI file and the MEDPAR file contained inaccurate or incomplete information, and that the process of matching the data in these files was flawed for the following reasons:

1. CMS failed to use proper patient identifiers;
2. the SSI data file omitted various categories of individuals entitled to SSI benefits; and
3. the MEDPAR data either included Medicare inpatient data that should have been excluded, or excluded Medicare inpatient data that should have been included.

Mutual of Omaha Insurance Company, Baystate’s fiscal intermediary (the "FI"), argued that Baystate was not entitled to relief (regardless of any proof of flaws in the Medicare fraction and the DSH calculation) for the following reasons:

1. a hospital’s Medicare fraction is fixed when computed by CMS and cannot be recalculated to account for errors;
2. the calculation of a hospital’s Medicare fraction is only intended to be an approximation, not a precise calculation;
3. Baystate waived its right to contest the DSH calculation because it failed to comment on the proposed rules, published in the Federal Register describing the methodology for the DSH calculation;
4. a hospital’s Medicare fraction is calculated by CMS using the best available data;
5. Baystate failed to quantify the financial impact of the calculation errors ; and
6. the financial impact to Baystate, if any, was minimal and did not justify the administrative burden that would be imposed upon CMS if it had to recalculate the Medicare fraction.

In ruling in favor of Baystate, the PRRB made the following significant findings on the three threshold issues that were raised by the FI:

• It rejected the FI’s argument that the Medicare fraction is fixed when calculated and may not be subsequently recalculated. The PRRB concluded that the argument is in conflict with the statutory provisions regarding appeals to the PRRB and also with the Secretary’s own policy statements. It found that nothing in the Act or the underlying DSH regulations specifically prohibits a recalculation of a hospital’s Medicare fraction.

• It also rejected the FI’s argument that the use of an approximation, or estimate, of a hospital’s Medicare fraction or DSH patient percentage is permissible under the statute and regulations. The PRRB also found that the process used by CMS in determining a hospital’s Medicare fraction does not utilize the best available data. In that regard, it concluded that it was unable to find any statutory or regulatory authority for the FI’s position that CMS is permitted to estimate a hospital’s Medicare fraction, as opposed to making an accurate determination.

• In response to the FI’s argument that Baystate waived its right to challenge CMS’ policy with regard to the calculation of the Medicare fraction (because it failed to use the notice and comment period during the rule making process to voice its objections to the DSH calculation when the proposed rules were first published) the PRRB concluded that the statute and the underlying regulations provide a very specific process for challenging final determinations of reimbursement – the PRRB hearing process.

• The PRRB stated that "nothing in the statute or regulations suggest that a provider’s right to challenge a policy on appeal be conditioned on its commenting on proposed rules establishing or discussing the policy. Because the DSH calculation is not finalized until the cost report is settled, the dispute is not ripe for review until the NPR is received."

The PRRB also concluded that the process used by CMS to match the SSI eligibility data against the MEDPAR data was flawed, and may deflate a hospital’s Medicare fraction and DSH percentage. Furthermore, it determined that the data used by CMS to calculate the Medicare fraction and DSH percentage, was not the best available. Specifically, the PRRB noted the following systemic errors:

• The omission of inactive or "stale" records (i.e., SSI records of recipients whose eligibility for benefits terminated prior to the time when the SSA transmitted its data to CMS, or SSI records that were deleted due to space limitations);

• The omission of "forced pay" cases when an individual appeared to be ineligible for SSI benefits according to automated payment records, but the individual actually received the payment manually;

• The omission of hold and suspense cases, where an individual was entitled to SSI benefits but payment was temporarily withheld or suspended;

• The omission of retroactive awards when an individual became entitled to SSI benefits retroactively;

• The omission of non-cash benefits when an individual was not entitled to cash payments of SSI benefits but was, nonetheless, entitled to noncash SSI benefits;

• The failure to use multiple identifiers to identify SSI recipients and to match MEDPAR data against SSI eligibility data using the only unique identifier available, namely, the individual’s social security number; and

• The loss of SSI eligible days attributable to inappropriately matching MEDPAR data against SSI eligibility data using non-unique identifiers that often change during the year.

The PRRB also found that the SSI data obtained from the SSA contained historical errors that were within CMS’ control to correct. In particular, it found that at least as early as 1993, and until February, 1996, CMS knew that SSI data omitted stale records (e.g., deceased persons) and that CMS did little or nothing to fix this problem.

The PRRB found that Baystate was not required to quantify the financial impact of each of the identified flaws, nor was it required to show an exact number of incorrectly counted days. It concluded that the impact of the inaccuracies in the DSH calculation were likely to be significant; and it would not be significantly burdensome for CMS to redesign its computer programs used to calculate a hospital’s DSH percentage, in a manner that would capture accurate information and accurately match SSI data with MEDPAR data.

The PRRB reversed the FI’s determination of Baystate’s DSH percentage and remanded the case to the FI to recalculate the percentage consistent with its decision.

The CMS Administrator has notified the parties that he will review the PRRB’s decision. Following his review, the CMS Administrator may affirm, reverse, or modify the PRRB’s decision, or remand it back to the PRRB for further proceedings.

The Baystate decision will likely serve as a model for the PRRB’s decisions in a number of individual hospital and group DSH appeals currently pending before it. Any hospital that receives DSH payments, as well as those "bubble" hospitals that are close to meeting the minimum threshold to receive DSH payments, should carefully consider the benefits of challenging CMS’ calculation of the hospital’s Medicare fraction and DSH percentage.

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