CMS Pub. 100-04, ch. 3, § 20.3

Share of Low-Income Patients

(Rev. 2393, Issued: 01-25-12, Effective: 10-01-11, Implementation: 07-02-12)

The Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985, (Public Law: 99-

272), provides for an additional payment to an urban hospital of 100 or more beds that serves

a disproportionate share of low-income patients.

Adjustments are made in the Federal portion of the operating cost DRG payment to increase

payments to hospitals serving a disproportionate share of low-income patients. The

additional payment equals the Federal portion of the operating cost DRG payment and outlier

payments, but excludes any additional payments for the costs of indirect medical education

multiplied by an adjustment percentage.

If a hospital meets the disproportionate share hospital (DSH) definition, an additional

operating cost payment will be made for discharges occurring on or after May 1, 1986. The

DSH adjustment is applied only to the Federal portion of the operating cost DRG payment

(including outlier payments). It is basically a year-end lump sum adjustment. However, the

A/B MAC (A) will identify hospitals that are eligible to receive the DSH adjustment and

make interim payments subject to a year-end settlement based upon the hospital's DSH

percentage for the cost reporting period. The DRG payment a hospital receives includes the

interim operating cost DSH payment and an interim operating indirect medical education

adjustment.

For services on or after October 1, 1997, the DSH percentage is not applied to outlier

payments.

The Supplemental Security Income (SSI)/Medicare Beneficiary Data for IPPS hospitals is

located at the following CMS web address:

https://www.cms.gov/Medicare/Medicare-Fee-for-Service-

Payment/AcuteInpatientPPS/dsh.html

The data is used for settlement purposes for hospitals.

Note that CMS issues a Recurring Update Notification prior to the Federal Fiscal Year

beginning date to provide contractors with the updated SSI file information.

A. - Regular Calculation of DSH Percentage

The operating DSH percentage is the sum of:

• The percentage of the hospital's total Medicare Part A patient days attributable to

Medicare patients who are also SSI recipients (this percentage will be supplied to the

A/B MAC (A) by CMS). Since the SSI/Medicare percentages are determined by

CMS on a fiscal year basis, hospitals will be afforded the option (for settlement

purposes) of determining their SSI/Medicare percentage based upon data from their

own cost reporting period. If a hospital avails itself of this option, it must furnish its

FI, in a manner and format prescribed by CMS, data on its Medicare patients for the

cost reporting period. CMS will match these data to data supplied by SSA to

determine the patients dually entitled to Medicare Part A and SSI for the hospital's

cost reporting period. The hospital bears the full cost of this process, including the

cost of verification by SSA.

Consistent with the regulations at 42 CFR 412.106(b)(2)(i) and 412.106(b)(2)(iii),

patients who are enrolled in Medicare Advantage (administered through Medicare Part

C) should also be included in the Medicare fraction. These days will be included in the

Medicare/SSI fraction, but in order for them to be counted, the hospital must submit an

informational only bill (TOB 111) which includes Condition Code 04 to their Medicare

contractor. This will ensure that these days are included in the hospital’s SSI ratio for

Fiscal Year 2007 and beyond.

Acute Care hospitals that received DSH during FY 2006 are also required to submit

informational only bills for their Medicare Advantage patients.

For MA patients, Long Term Care Hospitals are also required to submit informational

only bills (TOB 111) with Condition Code 04.

For MA patients, Inpatient Rehabilitation Facilities are also required to submit

informational only bills (TOB 111) with both Condition Code 04 and the Case Mix

Group (CMG) from the IRF PAI. Refer to section 140.2.4.3 for the requirements for

Inpatient Rehabilitation Facilities.

(Teaching hospitals do not need to submit additional claims with Condition Code 04 as

they already submit claims for Indirect Medical Education for MA beneficiaries with

Condition Codes 04 and 69. We will capture SSI information from these claims.)

• The percentage of total patient days attributable to patients entitled to Medicaid, but

not to Medicare Part A. (Medicaid days and total days are available on the cost

report.)

For operating DSH payments:

For discharges between May 1, 1986, and March 31, 1990, a hospital qualifies for an

operating cost DSH adjustment if it has a DSH percentage of:

• At least 15 percent for an urban hospital with 100 or more beds;

• At least 40 percent for an urban hospital with less than 100 beds; or

• At least 45 percent for a rural hospital, with fewer than 500 beds.

For discharges on and after October 1, 1986, the hospital qualifies for an operating cost DSH

adjustment if it has a DSH percentage of at least 15 percent, is located in a rural area, and has

500 or more beds.

For discharges between April 1, 1990 and December 31, 1995, a hospital qualifies for an

operating DSH adjustment if it has a DSH percentage of:

• At least 15 percent for an urban hospital with 100 or more beds, or a rural hospital

with 500 or more beds;

• At least 40 percent for an urban hospital with fewer than 100 beds;

• At least 45 percent for a rural hospital with 100 beds or fewer, if it is not also

classified as a sole community hospital; or

• At least 30 percent for a rural hospital with more than 100 beds which is classified as

a sole community hospital.

A hospital qualifies for a capital DSH adjustment if it is located in a large urban or other

urban area, has at least 100 beds, and has a DSH percentage greater than 0.

For the DSH determination, the number of beds in a hospital is determined by counting the

number of inpatient care bed days available during the cost reporting period, excluding beds

assigned to newborns, custodial care, and PPS excluded distinct part hospital units, and

dividing that number by the number of days in the cost reporting period. Inpatient care bed

days available should be the same as Indirect Medical Education (IME) bed days. Available

beds may not match the number of licensed beds.

B. - Determination of Operating DSH Adjustment Percentage

Hospitals that meet the DSH percentage criteria are entitled to adjustments to the Federal

portion of their operating cost DRG payments (including the Federal portion of outlier

payments) as follows. For hospitals that qualify for DSH payment, Pricer calculates the

DSH adjustment percentage. (See §20.2.3.) The following procedures are used to calculate

the DSH adjustment.

For the period May 1, 1986 - September 30, 1988:

Urban hospitals with 100 or more beds and rural hospitals with 500 or more beds - The

lesser of 15 percent or the percentage determined by using the following formula:

(DSH % - 15)(.5) + 2.5

EXAMPLES:

Hospital A is an urban hospital with 200 beds and has a DSH percentage of 21. Its DSH

payment factor is computed:

(21 - 15)(.5) + 2.5 = 5.5%

DSH adjustment factor = 5.5% (.0550)

Hospital B is an urban hospital with 250 beds and has a DSH percentage of 45. Its DSH

payment adjustment factor is computed:

(45 - 15)(.5) + 2.5 = 17.5%

DSH adjustment factor = 15% (.1500) (the maximum adjustment under the law)

• Urban hospitals with fewer than 100 beds - 5 percent.

• Rural hospitals with fewer than 500 beds - 4 percent.

For the period October 1, 1988 - March 31, 1990:

• Urban hospitals with 100 or more beds and rural hospitals with 500 or more

beds - the following formula is used:

(DSH % - 15) (.5) + 2.5

EXAMPLES:

Hospital A is an urban hospital with 200 beds and has a DSH percentage of 21 percent. Its

DSH payment factor is computed:

(21-15)(.5) + 2.5 = 5.5%

DSH adjustment factor = 5.5% (.0550)

Hospital B is an urban hospital with 250 beds and has a DSH percentage of 45 percent. Its

DSH payment adjustment factor is computed:

(45-15) (.5) + 2.5 = 17.5%

DSH adjustment factor = 17.5% (.1750, the limit was removed effective 10/1/88)

• Urban hospitals with fewer than 100 beds - 5 percent.

• Rural hospitals with fewer than 500 beds - 4 percent.

For the period April 1, 1990 - December 31, 1995:

• Urban hospitals with 100 or more beds and rural hospitals with 500 or more

beds whose DSH percentage is greater than 20.2 - the following formula is used:

Through December 31, 1990 - (DSH % - 20.2) (.65) + 5.62

January 1, 1991, and later - (DSH % - 20.2) (.7) + 5.62

EXAMPLES:

Hospital A is an urban hospital with 200 beds and has a DSH percentage of 21 percent. Its

December 1990 DSH payment factor is computed:

(21 - 20.2) (.65) + 5.62 = 6.14%

DSH adjustment factor = 6.14% (.0614)

Hospital B is an urban hospital with 250 beds and has a DSH percentage of 45 percent. Its

December 1990 DSH payment adjustment factor is computed:

(45 - 20.2) (.65) + 5.62% = 21.74%

DSH adjustment factor = 21.74% (.2174)

Urban hospitals with 100 or more beds and rural hospitals with 500 or more beds whose

DSH percentage is equal to or less than 20.2 - the following formula is used:

(DSH % - 15) (.6) + 2.5

• Urban hospitals with fewer than 100 beds - 5 percent.

• Rural hospitals that are RRCs and sole community hospitals - the greater of 10

percent or the percentage determined using the following formula:

(DSH % - 30) (.6) + 4.0

EXAMPLES:

Hospital C is a rural hospital that is an RRC and a sole community hospital, and has a DSH

percentage of 35 percent. Its DSH payment factor is computed:

(35 - 30) (.6) + 4.0 = 7%

DSH adjustment factor = 10% (.1000)

Hospital D is a rural hospital which is a RRC and a sole community hospital. It has a DSH

percentage of 45 percent. Its DSH payment factor is computed:

(45 - 30) (.6) + 4.0 = 13%

DSH adjustment factor is 13% (.1300)

• Rural hospitals that are RRCs, but are not sole community hospitals-the

following formula is used:

(DSH % - 30) (.6) + 4.0

• Rural hospitals that are sole community hospitals, but are not RRCs - 10 percent.

• Rural hospitals not described above with 100 beds or less - 4 percent if DSH

percentage is 45 percent or more.

• Rural hospitals not described above with more than 100 beds but fewer than 500

beds - 4 percent if DSH percentage is 30 percent or more.

• Urban hospitals with 100 or more beds whose DSH percentage is less than or

equal to 20.2 - the following formula is used:

(DSH % - 15) (.6) + 2.5

For the period October 1, 1993, through September 30, 1994:

• Urban hospitals with 100 or more beds whose DSH percentage is greater than

20.2-the following formula is used:

(DSH % - 20.2) (.8) + 5.88

• Urban hospitals with 100 or more beds whose DSH percentage is less than or

equal to 20.2 - the following formula is used:

(DSH % - 15) (.6) + 2.5

• Rural hospitals that are RRCs and sole community hospitals - the greater of 10

percent or the percentage determined using the following formula:

(DSH % - 30) (.6) + 4.0

EXAMPLES:

Hospital C is a rural hospital that is a RRC and a sole community hospital. It has a DSH

percentage of 35 percent. The DSH payment factor is computed:

(35 - 30) (.6) + 4.0 = 7%

DSH adjustment factor = 10% (.1000), the greater payment

Hospital D is a rural hospital that is a RRC and a sole community hospital. It has a DSH

percentage of 45 percent. Its DSH payment factor is computed:

(45 - 30) (.6) + 4.0 = 13%

DSH adjustment factor = 13% (.1300)

Rural hospitals that are RRCs and are not sole community hospitals - the percentage is

determined using the following formula:

(DSH % - 30) (.6) + 4.0

• Rural hospitals that are sole community hospitals and are not RRCs - 10 percent.

• Rural hospitals not described above - 4 percent.

For discharges after September 30, 1994:

• Urban hospitals with 100 or more beds and rural hospitals with 500 or more

beds whose DSH percentage is greater than 20.2 - the percentage is determined

using the following formula:

(DSH % - 20.2) (.825) + 5.88

• Urban hospitals with 100 or more beds whose DSH percentage is less than or

equal to 20.2 - the following formula is used:

(DSH % - 15) (.65) + 2.5

• Rural hospitals that are RRCs and sole community hospitals - the greater of 10

percent or the percentage determined with the following formula:

(DSH % - 30) (.6) + 4.0

EXAMPLES:

Hospital C is a rural hospital that is an RRC and a sole community hospital. It has a DSH

percentage of 35 percent. Its October 1994 DSH payment factor is computed:

(35 - 30) (.6) + 4.0 = 7%

DSH adjustment factor = 10% (.1000), the greater rate

Hospital D is a rural hospital that is an RRC and a sole community hospital. It has a DSH

percentage of 45 percent. Its October 1994 DSH payment factor is computed:

(45 - 30) (.6) + 4.0 = 13%

DSH adjustment factor = 13% (.1300)

• Rural hospitals that are RRCs, but not sole community hospitals - Use the

following formula:

(DSH % - 30) (.6) + 4.0

• Rural hospitals that are sole community hospitals and are not RRCs - 10 percent.

• Rural hospitals not described above - 4 percent.

The amount of the operating cost DSH adjustment is computed by multiplying the Federal

portion of the hospital's operating cost DRG revenues by the appropriate DSH adjustment

factor.

EXAMPLE: Hospital A's DSH payment adjustment factor is 5.5 percent (.0550). The

Federal portion of its DRG revenues including appropriate outlier payments, but excluding

any payments for indirect medical education costs, equals $100,000.

Federal DRG revenues x DSH adjustment factor = DSH adjustment amount $100,000 x .055

= $5,500

The A/B MAC (A) will accumulate a record of the DSH amount paid, the Federal portion of

the operating cost DRG and any outlier amount for hospital discharges after April 30, 1986,

to use at cost settlement.

C. - Computation of DSH Adjustment

Compute the amount of the DSH adjustment by multiplying the Federal portion of the

hospital's DRG revenues by the appropriate DSH adjustment factor.

EXAMPLE: Hospital A's DSH payment adjustment factor is 5.5 percent (or .0550). The

Federal portion of its DRG revenues (including appropriate outlier payments, but excluding

any payments for indirect medical education costs) equals $100,000.

Federal DRG revenues x DSH adjustment factor = DSH adjustment amount $100,000 x .055

= $5,500

D. - DSH Exception

The law contains a provision whereby a hospital can qualify for an operating cost DSH

adjustment of:

• 15 percent for discharges prior to October 1, 1988;

• 25 percent for discharges between October 1, 1988, and April 1, 1990;

• 30 percent for discharges from April 1, 1990, through September 31, 1991;

• 35 percent for discharges on or after October 1, 1991, if:

° It is located in an urban area and has 100 or more beds; and

° It demonstrates that, during its cost reporting period, more than 30 percent of its

total inpatient care revenues were derived from State and local government

payments for indigent care furnished to patients not covered by Medicare or

Medicaid.

It is incumbent upon the hospital to demonstrate that more than 30 percent of its total

inpatient care revenues are from State and local government sources and that they are

specifically earmarked for the care of indigents (that is, none of the money may be used for

any purpose other than indigent care). The following are the types of care that are not

included as indigent care:

• Free care furnished to satisfy a hospitals Hill-Burton obligation.

• Free care or care a hospital furnished at reduced rates to its employees or by a

government hospital to any category of public employee.

• Funds furnished to a hospital to cover general operating deficits.

• The adjustment is not automatic from year to year but must be applied for on an

annual basis.

Documentation to support the application includes the hospital's complete audited financial

statements and their accompanying notes. The hospital must provide detailed schedules

related to State and local revenue appropriations and outline their purpose.

Unless the appropriations are specifically earmarked for indigent patient care, the A/B MAC

(A) shall assume that a portion of the funds was intended to cover the costs of other

uncompensated care, such as bad debts for non-indigent patients, free care to employees,

etc., as well as to cover general operating deficits. The A/B MAC (A) shall calculate the

percentage of charity care included in all uncompensated care and apply the percentage to

the appropriate funds to determine the amount appropriated for charity care.

Hospitals must submit documentation to support amounts claimed as indigent patient care.

This includes a copy of their procedures for determining indigence, steps used to verify a

patient's financial information, and methods used to distinguish bad debts from indigence.

The A/B MAC (A) shall review the documentation submitted in support of the provider's

request for a disproportionate share adjustment under 42 CFR 412.106(c)(2) of the

regulations. Beginning with Federal Fiscal Year (FY) 2011 A/B MACs (A) shall submit to

CMS annually by February 28 documentation for the hospitals they determine meet the

qualifying standards for receiving disproportionate share hospital (DSH) payments under

section 42 CFR 412.106(c)(2). This review can be accomplished in conjunction with the

audit/settlement of the cost report for the period subject to the adjustment. At a minimum,

the A/B MAC (A) shall:

• Verify total inpatient revenues;

• Verify that State and local government appropriations on the financial statements are

consistent with amounts contained in governmental appropriations bills;

• Review, on the basis of a sample of cases, the provider's implementation of

procedures for identifying indigent patients. Ensure that amounts for "indigent"

patients do not include charges associated with:

° Titles XIX and XVIII patient care;

° Hill-Burton care;

° Free care to employees; and

° Bad debts for patients who are not indigent.

E. - Reporting for PS&R and CWF

The A/B MAC (A) 's PPS Pricer identifies the amount of the DSH adjustment on each bill.

The A/B MAC (A) reports this amount with value code 18 to its PS&R, and to CWF.