How Worksheet S-10 Impacts Hospitals Uncompensated Care Payments

By Michael Newell
Partner
Moss Adams Health Care Consulting Practice

Original Publish Date: March 8, 2020

Hospitals that qualify for the Medicare Disproportionate Share (DSH) hospital payment also qualify for uncompensated care (UC) supplemental payments based on their portion of UC costs reported on Medicare cost report Worksheet S-10.

It’s important for hospitals to pay attention and file these reports accurately, and in accordance with program instructions, to ensure they receive their rightful share of the UC pool. For federal fiscal year (FFY) 2020, the UC pool is approximately $8.35 billion, which will be shared among all qualifying hospitals. UC cost is defined as charity care and non-Medicare bad debt as reported on Worksheet S-10, Line 30.

The numbers you report on your Worksheet S-10 now determine your future payments. Hospitals must ensure their cost reports and associated forms are in compliance, or you could risk losing your fair share of future uncompensated care payments.

Adding to the growing nature of the use of UC costs data, certain states, such as Texas and New Mexico, are also using data reported on Worksheet S-10 for state UC program allocations. This trend is expected to increase as additional state UC programs renew with the Centers for Medicare and Medicaid Services (CMS).

Below are more details on the importance of reporting, the additional audit scrutiny you should prepare to face, and steps to help you remain compliant.

Reasons Reporting is Critical

Current reporting of data affects the calculation of future UC pool distributions and therefore future payments.

Accurately reporting UC costs, as reported on the hospital cost report form CMS-2552-10, is critical from a regulatory and compliance standpoint and to protect a hospital’s fair share of the federal uncompensated care pool payments.

The Uncompensated Care Pool

The UC pool formula is simple.

First, hospitals must qualify for Medicare DSH. There are roughly 2,430 hospitals at time of publication that participate in this pool.

Each specific hospital’s UC costs as reported on Worksheet S-10 and, according to its financial assistance policy or policies (FAPs), are compared to national UC costs for participating hospitals. The hospital receives funding based on its specific share of the national UC costs.

Therefore, developing and following policies, having systems in place to compile data, and compliantly reporting data are critical to a hospital’s ability to secure its share of the UC pool.

Financial Assistance Policies (FAP)

Each hospital can write off UC costs only based on its own FAP for S-10 reporting purposes. As a result, your hospital must take great care in writing your policies so that the costs incurred are specifically addressed.

These policies can be quite complex and must be followed from an operational standpoint to ensure compliant reporting. Worksheet S-10 instructions, Topic 606, and IRS 501(r) rules for reporting UC costs also come into play.

Increased Audit Scrutiny

With Worksheet S-10 audits on the rise, overlooking the details of accurate, compliant reporting can make it more challenging for hospitals to receive the reimbursement to which they’re entitled.

CMS and its Medicare Administrative Contractors (MACs) have only audited the data for FFYs 2015 and 2017, so audits are still new and developing.

Roughly 600 hospitals were audited each year between FFYs 2015 and 2017—only 25% of participating hospitals. Many of those were audited for both years.

Next Steps

Most hospitals have yet to be subjected to audit scrutiny, which is extremely detailed and time consuming.

To prepare, your hospital should:

Segregate charity care between insured patients and uninsured patients. The accurate reporting of insured charity care continues to be a struggle for many.
Identify and remove professional fees from the reported costs. These are sometimes stored on separate systems.
Include Medicaid non-covered services, if your policy allows. This can be difficult to identify for some.

These items, as well as those related to bad debt, will be reviewed at the time of the audit.

Bad Debt

In 2019, for the first time, MACs began substantive audits of non-Medicare bad debt during the FFY 2017 audit cycle, raising even more challenges.

To prepare, your hospital should:

Reconcile bed debt charges reported on S-10 to their financial statements
Ensure audit samples are supported by the FAP

Patient-Level Detail

Looking forward, for cost reports beginning on or after October 1, 2018, hospitals must also provide the patient detail supporting charity care costs when submitting the initial cost report. For the first time, MACs will have the patient detail, for testing purposes, at the time of the cost report submission. Failure to do so will result in the rejection of your Medicare cost report.

UC data should be top of mind now more than ever due to the:

Complex nature of reporting requirements
Importance of FAP(s)
Complexities of pulling complete and compliant data from systems
Supporting of ever-developing audit protocols

Trusted Advisor

To build your program, it’s important to start by focusing on your FAPs, reporting capabilities, and strengths and weaknesses. Seeking the services of a trusted advisor can help guide you through the Worksheet S-10 filing process so you receive the UC costs to which you’re entitled.

Michael has worked in health care financial management since 1982. He specializes in preparing and reviewing hospitals’ Medicare DSH and Worksheet S-10 for cost report filings. He can be reached at (469) 587-2120 or Michael.Newell@mossadams.com.

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