Oklahoma Health Care Authority Presenter: Stephen Weiss Sr. Policy Advisor January 26, 2007

1. Oklahoma Health Care AuthorityPresenter:Stephen Weiss Sr. Policy AdvisorJanuary 26, 2007

2. Disproportionate Share Hospital Program DSH Not DISH

3. Revised DSH Presentation • Presentation has been revised to incorporate 2007 State Plan Amendment • Also includes new text to addresses comments received after initial presentations were made during the fall of 2006. The presentations were held as follows: • November 7, Oklahoma City • November 27th, Tulsa • December 5th, Lawton

4. In Summary • DSH established in 1981. • First Concern: Address the needs of hospitals which serve a high number of Medicaid patients and low-income, often uninsured, patients. • The second concern was that there was the potential for a growing gap in 1981 between what Medicaid paid hospitals and what the cost of care was at the hospitals.

5. Background • OBRA ’81 (Pub. L. No. 97-35) gave states flexibility to develop Medicaid reimbursement systems that differed from Medicare. • With this flexibility came a concern that states would cut Medicaid payments, thereby creating difficulties for hospitals serving large numbers of Medicaid and uninsured patients. • To minimize the potential negative impact on these hospitals, OBRA ‘81 included a requirement that states make “additional” Medicaid payments to hospitals that serve a disproportionate number of low-income patients with special needs.

6. Background • At first the states ignored the law because it was broad and vague. • In 1985, the HCFA (now CMS) ruled that states could use hospital taxes and donations as state share for the DSH program. The state share is the FMAP. • West Virginia was the first state to enact such a provision in 1985. • OBRA1986 Congress clarified that HCFA had no authority to limit in any way the amount of payment adjustments made to DSH hospitals (PL 99-509).

7. Background • OBRA 1987 established a federal definition for DSH hospitals and required states to make payments to these facilities. • Definition included hospitals with • Medicaid utilization rate of one standard deviation or more above the mean Medicaid utilization rate in the state or • low-income utilization rate of 25 percent or more. • OBRA 1987 also gave states flexibility to designate DSH hospitals and set payment levels.

8. Why DSH? • Easy Money! • Originally no limits on the amount of DSH a state could obtain. • No one was held accountable for their expenditures. • If a state could prove through a formula how much uncompensated care a hospital provided in a certain time period then the hospital could receive a DSH payment.

9. The Results…

10. Oklahoma Tried to DSH before Reforms limited the program… • In 1992 the Oklahoma voters rejected a state question on a provider tax. • 1993 An Oklahoma Medicaid Reform Task Force recommended adoption of four funding pools based on a formula targeting charity care and incorporating the federal laws related to low income utilization. • 1993 SB 576 (Section 19) required a DSH formula weighted against the University of Oklahoma’s Medical Center. • Because Oklahoma received less than $25 million for DSH, had to weigh the funding toward the University of Oklahoma by law and the availability of matching funds were limited, the University Medical Center received over 80% of the available DSH funds annually.

11. Congress Reins in DSH • OBRA 1987 provided that hospitals could receive DSH only if they met the following criteria: • Have at least 2 obstetricians who have staff privileges at the hospital and who have agreed to provide obstetric services to individuals who are entitled to medical assistance for such services; • or hospitals which serve individuals under 18 years of age; • For hospitals which did not offer nonemergency obstetric services to the general population and were in business as of December 22, 1987. • In the case of a hospital located in a rural area the term “obstetrician” includes any physician with staff privileges at the hospital who performs nonemergency obstetric procedures.

12. Reining in DSH by Law • 1991 - The Medicaid Voluntary Contribution and Provider-Specific Tax Amendments (P.L. 101-234), established strict guidelines for provider taxes and donations. • DSH payments were capped at roughly their 1992 levels and the law limited national DSH payments to 12 percent of total Medicaid costs. • Congress introduced the concept of High and Low DSH states using the 12 percent criteria for each state.

13. Reining in DSH by Law • 1993 - OBRA (P.L. 103-66) capped total DSH payments to a single hospital; became known as the “hospital-specific cap” or DSH Upper Payment Limit (UPL). • Also prohibited designation of a hospital as a DSH hospital unless hospital had a Medicaid inpatient utilization rate of at least 1%. • 1997 - BBA (P.L. 105-33) established state specific DSH allotments for each year through 2002. • Limited how much DSH money IMD can receive based on a federal formula using the 1995 as base year.

14. Reining in DSH by Law • 2000 - BIPA (P.L. 106-554) postponed the state specific DSH cuts for 2001 and 2002. • BIPA added a new Special Rule for Extremely Low DSH States. States with 1999 DSH expenditures that were between 0% and 1% of the states' 1999 total medical assistance expenditures were considered to be ``low-DSH States.'' • Oklahoma designated a low DSH state. • 2003 MMA (P.L. 108-173) reversed the BIPA declines. For 2004, ceilings for high DSH states were increased by 16% for one year.

15. Reining in DSH by Law • MMA changed the definition of Low-DSH State by expanding the range of DSH expenditures to medical assistance expenditures to 0% to 3% based on 2000 expenditure reports. • Low DSH states received 16% increases in their ceilings each year from 2004 through 2008, and then a CPI calculation for each year thereafter. • Finally, the MMA established very strict and expanded DSH reporting and auditing requirements which states will have to comply with once the federal rules are issued.

16. “The race for quality has no finish line- so technically, it's more like a death march.”

17. Unintended Consequences… • The unintended consequence of all these reforms was to: • lock states into certain funding situations that are in some respects unfair, and • Penalize states that did not exploit the DSH program prior to the enactment of the laws which were intended to stop the perceived abuses of the program.

19. Oklahoma After the MMA

20. Oklahoma Response… • Initial response in 2004 and 2005 from the increases in the MMA was to provide added funds to OU Medical Center. • In 2006 the agency decided that the formulas needed to be changed to add more hospitals to the mix. • An initial allocation was made in 2006 but a balance was left to distribute under a new formula if one could be created.

22. Changes to the Plan • A new section of the state plan was added in 2006 to allocate the $13.9 million. • First, there was a commitment that since we had more money there would be no losers from any changes made. • In 2005 OU Medical Center received $25.5 million so the first section of the State Plan Amendment (SPA) allocated $7.2 million to OU Medical Center. • Second, $840,486 was allocated to the J.D. McCarty Center for Handicapped Children located in Norman. • Finally, $5.9 million was allocated to as many hospitals as we could qualify under federal law for DSH.

23. Final Oklahoma DSH Allocation for 2006

24. Changes to the Plan • For 2007: • OU Medical Center will receive the same amount as it did in 2006 plus an inflation adjustment based on the first half of the calendar year. • The remaining hospitals will then share in the balance of funds left after the OU allocation and the IMD allocation are subtracted

25. Proposed DSH Allocation for 2007

26. Changes to the Plan for 2006 and 2007 for Private and Community Hospitals • The formula and methodology adopted by Oklahoma attempts to capture the essence of the main concerns expressed by Congress when the DSH program was created: - target hospitals that serve a disproportionate number of Medicaid and low income, often uninsured, patients. • Congress gave states broad discretion in defining and identifying these hospitals - which are often referred to as “safety-net” hospitals. • A 2002 RAND reported noted that “An important distinction of safety net hospitals is that they provide care to vulnerable populations. Unfortunately, there is no general agreement on which groups should be considered vulnerable.”

27. Changes to the Plan • The 2002 RAND report: • examined the distribution of both Medicare and Medicaid DSH funds across hospitals, • assessed alternative criteria that could be used to identify safety net hospitals, • developed measures of hospital financial vulnerability to identify those safety hospitals that are under most financial pressure, and • explored the extent to which alternative allocation policies to the current Medicare and Medicaid DSH payment mechanisms would improve the distribution of funds to those safety net hospitals that are most vulnerable. • the report found that a formula involving Medicaid inpatient hospital days relative to total inpatient hospital days may be the most effective in achieving the desired goals of the DSH program.

28. Changes to the Plan • One of the overriding concerns in adopting the methodology for the purpose of distributing DSH funds is to insure that the data used in the formula can be audited. • The second concern is that the definition of a safety net hospital be broad and inclusive to capture as many hospitals as possible within the parameters of the federal law. • The final concern is that the funds be distributed as fairly as possible with a minimum amount of gamesmanship.

29. Changes to the Plan • The methodology first groups like size hospitals with each other based on licensed bed size. • The larger hospitals tend to offer more acute care, high cost services such as trauma care and neonatal intensive care and attract patients from throughout the state to their facilities in search of those high level and more intensive services. • The methodology then weighs the funding for Private & Community Hospitals to hospitals that provide the most amount of the Medicaid inpatient days in the state. • The final portion of the methodology weighs indigent care costs among the different hospitals within each group. This portion of the methodology recognizes that hospitals incur such costs and allows each like sized hospital to be compared to other like sized hospitals.

30. Changes to the Plan • Group 1 includes hospitals with 300 or more licensed beds. • Group 2 includes hospitals with more than 100 but less than 300 licensed beds. • Group 3 includes hospitals with less than 100 licensed beds.

31. Allocation to Groups for 2006

32. Proposed Allocation to Groups for 2007

33. Hospital Allocations • Hospitals in each group receive funds based on their relationship to the total amount of Indigent Care Costs provided by the group. Indigent Care Costs are reported to the Oklahoma Health Care Authority by each hospital using the annual OHCA DSH Survey. Indigent Care Costs are calculated based on the following hospital specific formula: Indigent Care Costs = (Medicaid Gross Charges + Bad Debt + Charity Care) x (The hospital specific cost to charge ratio)

34. Upper Payment Limits • Once allocations are made to each hospital they are compared to the hospital’s DSH specific upper payment limit and then adjusted down, if necessary, so as to not exceed the Hospital Specific DSH Limit. Hospital Specific DSH Limits = Hospital Specific CCR x (Total Medicaid Gross Charges + Total Charity Care Charges) – (All Medicaid Payments) • For 2007 Hospital Specific CCR = one used for DRG & published on OHCA website • Gross Charges = Actual Billed Amount • Charity Care Charges = Form Question 3.4 adjusted for inflation based on the most current CMS Market Basket data available • All Medicaid payments = Actual Medicaid Payments

35. Hospital Responsibilities • Each hospital will be responsible for maintaining its own supporting documents and records related to information reported to the OHCA on the annual Disproportionate Share Hospital Payment program. • Hospitals must use Medicare cost reports filed with CMS wherever specified and wherever information corresponds to the DSH Survey. • Pursuant to Section 1923(j) of the Social Security Act, hospitals will be subject to annual audits where information provided on the DSH Survey is matched against hospital documents and records. • Hospitals found to be out of compliance as a result of the audits will be responsible for reimbursing the state. • Any hospital required to pay back any or all portions of DSH funds allocated pursuant to this Section will have the right to an appeal pursuant to the appeal provisions included in this State Plan.

36. SEC. 1923. [42 U.S.C. 1396r-4] (a) IMPLEMENTATION OF REQUIREMENT.— ADJUSTMENT IN PAYMENT FOR INPATIENT HOSPITAL SERVICES FURNISHED BY DISPROPORTIONATE SHARE HOSPITALShttp://www.ssa.gov/OP_Home/ssact/title19/1923.htm • (j) ANNUAL REPORTS AND OTHER REQUIREMENTS REGARDING PAYMENT ADJUSTMENTS.—With respect to fiscal year 2004 and each fiscal year thereafter, the Secretary shall require a State, as a condition of receiving a payment under section 1903(a)(1) with respect to a payment adjustment made under this section, to do the following: • (1) REPORT.—The State shall submit an annual report that includes the following • (A) An identification of each disproportionate share hospital that received a payment adjustment under this section for the preceding fiscal year and the amount of the payment adjustment made to such hospital for the preceding fiscal year. • (B) Such other information as the Secretary determines necessary to ensure the appropriateness of the payment adjustments made under this section for the preceding fiscal year.

37. SEC. 1923. [42 U.S.C. 1396r-4] (a) IMPLEMENTATION OF REQUIREMENT.— ADJUSTMENT IN PAYMENT FOR INPATIENT HOSPITAL SERVICES FURNISHED BY DISPROPORTIONATE SHARE HOSPITALShttp://www.ssa.gov/OP_Home/ssact/title19/1923.htm • (2) INDEPENDENT CERTIFIED AUDIT—The State shall annually submit to the Secretary an independent certified audit that verifies each of the following: • (A) The extent to which hospitals in the State have reduced their uncompensated care costs to reflect the total amount of claimed expenditures made under this section. • (B) Payments under this section to hospitals that comply with the requirements of subsection (g).

38. SEC. 1923. [42 U.S.C. 1396r-4] (a) IMPLEMENTATION OF REQUIREMENT.— ADJUSTMENT IN PAYMENT FOR INPATIENT HOSPITAL SERVICES FURNISHED BY DISPROPORTIONATE SHARE HOSPITALShttp://www.ssa.gov/OP_Home/ssact/title19/1923.htm • (C) Only the uncompensated care costs of providing inpatient hospital and outpatient hospital services to individuals described in paragraph (1)(A) of such subsection are included in the calculation of the hospital-specific limits under such subsection. • (D) The State included all payments under this title, including supplemental payments, in the calculation of such hospital-specific limits. • (E) The State has separately documented and retained a record of all of its costs under this title, claimed expenditures under this title, uninsured costs in determining payment adjustments under this section, and any payments made on behalf of the uninsured from payment adjustments under this section.

39. Code of Federal Regulations Title 42 Public HealthPART 433—STATE FISCAL ADMINISTRATION • §433.32 Fiscal policies and accountability. • A State plan must provide that the Medicaid agency and, where applicable, local agencies administering the plan will— • (a) Maintain an accounting system and supporting fiscal records to assure that claims for Federal funds are in accord with applicable Federal requirements; • (b) Retain records for 3 years from date of submission of a final expenditure report; • (c) Retain records beyond the 3-year period if audit findings have not been resolved; and • (d) Retain records for nonexpendable property acquired under a Federal grant for 3 years from the date of final disposition of that property.

40. Proposed DSH Audit RegulationsFederal Register / Vol. 70, No. 165 / Friday, August 26, 2005 / Proposed Rules

41. Department of Health and Human Services OFFICE OF INSPECTOR GENERAL • Audit Of Selected States’ Medicaid Disproportionate Share Hospital Programs; March 2006(A-06-03-00031) • SUMMARY OF FINDINGS: Nine of the ten States reviewed did not comply with the hospital-specific DSH limits imposed by section 1923(g) of the Act. As a result, DSH payments exceeded the hospital-specific limits by approximately $1.6 billion ($902 million Federal share).

42. Department of Health and Human Services OFFICE OF INSPECTOR GENERAL • Four States (California, Illinois, Texas, and Washington) did not later adjust the payments using actual costs. • Eight States included unallowable costs in their calculations of hospital-specific limits. Unallowable costs consisted of costs for institutions for mental diseases and non-hospital services as well as unallowable costs such as bad debts, miscalculations, and other accounting errors.