HCA Holdings 2011 Annual Report Download - page 17

Disproportionate Share Hospital Payments
In addition to making payments for services provided directly to beneficiaries, Medicare makes additional
payments to hospitals that treat a disproportionately large number of low-income patients (Medicaid and
Medicare patients eligible to receive Supplemental Security Income). Disproportionate share hospital (“DSH”)
payments are determined annually based on certain statistical information required by HHS and are calculated as
a percentage addition to MS-DRG payments.
Under the Health Reform Law, beginning in federal fiscal year 2014, Medicare DSH payments will be
reduced to 25% of the amount they otherwise would have been absent the law. The remaining 75% of the amount
that would otherwise be paid under Medicare DSH will be effectively pooled, and this pool will be reduced
further each year by a formula that reflects reductions in the national level of uninsured who are under 65 years
of age. Each DSH hospital will then be paid, out of the reduced DSH payment pool, an amount allocated based
upon its level of uncompensated care. It is difficult to predict the full impact of the Medicare DSH reductions.
The CBO estimates $22 billion in reductions to Medicare DSH payments between 2010 and 2019, while for the
same time period, CMS estimates reimbursement reductions totaling $50 billion.
Hospitals that provide care to a disproportionately high number of low-income patients may receive
Medicaid DSH payments. The federal government distributes federal Medicaid DSH funds to each state based on
a statutory formula. The states then distribute the DSH funding among qualifying hospitals. States have broad
discretion to define which hospitals qualify for Medicaid DSH payments and the amount of such payments. The
Health Reform Law will reduce funding for the Medicaid DSH hospital program in federal fiscal years 2014
through 2020 by the following amounts: 2014 ($500 million); 2015 ($600 million); 2016 ($600 million); 2017
($1.8 billion); 2018 ($5 billion); 2019 ($5.6 billion); and 2020 ($4 billion). In addition, the Jobs Creation Act
provides for an additional Medicaid DSH reduction of $4.1 billion in federal fiscal year 2021. How such cuts are
allocated among the states and how the states allocate these cuts among providers, have yet to be determined.
TRICARE
TRICARE is the Department of Defense’s health care program for members of the armed forces. For
inpatient services, TRICARE reimburses hospitals based on a DRG system modeled on the Medicare inpatient
PPS. The Department of Defense has also implemented a PPS for hospital outpatient services furnished to
TRICARE beneficiaries similar to that utilized for services furnished to Medicare beneficiaries. Because the
Medicare outpatient PPS APC rates have historically been below TRICARE rates, the adoption of this payment
methodology for TRICARE beneficiaries has reduced our reimbursement; however, TRICARE outpatient
services do not represent a significant portion of our patient volumes.
Annual Cost Reports
All hospitals participating in the Medicare, Medicaid and TRICARE programs, whether paid on a
reasonable cost basis or under a PPS, are required to meet certain financial reporting requirements. Federal and,
where applicable, state regulations require the submission of annual cost reports covering the revenues, costs and
expenses associated with the services provided by each hospital to Medicare beneficiaries and Medicaid
recipients.
Annual cost reports required under the Medicare and Medicaid programs are subject to routine audits, which
may result in adjustments to the amounts ultimately determined to be due to us under these reimbursement
programs. These audits often require several years to reach the final determination of amounts due to or from us
under these programs. Providers also have rights of appeal, and it is common to contest issues raised in audits of
cost reports.
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