From JD Supra — By Alek Pivec —  

On December 29, 2022, CMS posted on its website Transmittal 18, which implements sweeping changes to the Medicare cost report for hospitals and its accompanying instructions. The revisions affect nearly every facet of Medicare reimbursement for hospitals, including uncompensated care, Medicare DSH, bad debt, and graduate medical education. The changes in Transmittal 18 are effective for cost reporting periods beginning on or after October 1, 2022.

Transmittal 18 makes significant changes to Worksheet S-10 of the cost report, which is principally used to collect uncompensated care data from hospitals for use in calculating Medicare uncompensated care payments. The agency has split Worksheet S-10 into two parts. Part I will be the former S-10, wherein hospitals will continue to report the uncompensated care costs of the entire facility, including rehabilitation and psychiatric units. In Part II, hospitals will report only the uncompensated care costs of inpatient and outpatient services that are billable under the hospital’s provider number. In a comment accompanying this change, CMS explains that it will consider using the data in Part II to calculate uncompensated care payments to hospitals in future years.

Transmittal 18 also clarifies the instructions to Worksheet S-10 in several respects. The new instructions specify that hospitals that received funding from the Provider Relief Fund for services rendered to uninsured COVID-19 patients may not report the charges for those services on Worksheet S-10. Additionally, the instructions to Worksheet S-10 now state that CMS will infer a contractual relationship between a provider and an insurer if a provider accepts as payment any amount from an insurer. Finally, Transmittal 18 clarifies that if a patient has insurance, but none of the patient’s stay is covered, the patient is deemed uninsured, and their charges (if unpaid) must be reported in Column 1 of the worksheet, where they will be reduced by the cost-to-charge ratio.

CMS has also updated the cost report to implement changes in policy resulting from recent litigation. First, CMS has modified the instructions for reporting Medicaid eligible patient days on Worksheet S-2, Line 24. The new instructions specify that hospitals may report patient days of patients regarded as eligible for Medicaid under a waiver authorized under section 1115 of the Social Security Act. CMS made this change in response to the decision of the United States Court of Appeals for the District of Columbia in Bethesda Health, Inc. v. Azar, 980 F.3d 121 (D.C. Cir. 2020), which overturned CMS’s former policy of excluding section 1115 days from the count of Medicaid eligible days. King & Spalding represented the plaintiff hospitals in Bethesda.

Second, CMS modified the instructions for calculating direct graduate medical education (DGME) payments on Worksheet E-4. The new instructions implement the revised DGME payment methodology that CMS adopted in the inpatient prospective payment system rule for FY 2023. The new methodology eliminates the penalty for hospitals that (1) train resident fellows, and (2) operate in excess of their FTE caps. The agency’s former methodology, which included that penalty, was struck down in Milton S. Hershey Medical Center v. Becerra, 2021 WL 1966572 (D.D.C. 2021). King & Spalding represented 32 out of the 56 hospitals in Milton S. Hershey.

Transmittal 18 also introduces four new exhibits that must be submitted with the cost report. These exhibits contain the standard format hospitals must use to report the necessary information to support Medicaid eligible days, Medicare bad debt, total bad debt (for use in Worksheet S-10), and charity care.

Other significant changes in Transmittal 18 include:

  • New lines and worksheets for hospitals to report and claim reimbursement for the acquisition costs of cellular therapy and chimeric antigen receptor T-cells;
  • New lines on Worksheet E Part A and E-4 for hospitals to report additional FTE slots awarded under section 126 of the Consolidated Appropriations Act of 2021;
  • New lines on Worksheet E Part A and E-4 for hospitals to report resets to FTE caps and per-resident amounts under section 131 of the Consolidated Appropriations Act of 2021;
  • Revision to the sequestration adjustment under the Protecting Medicare and American Farmers from Sequester Cuts Act of 2021; and
  • Revisions to accommodate providers participating in the Community Health Access and Rural Transformation (CHART) model.

A PDF copy of the new cost report is available here. The revised instructions to the cost report are available here.

Alek Pivec is an associate in the Washington, D.C. office of King & Spalding and a member of the firm’s Healthcare practice.  Alek specializes in representing hospitals and other healthcare providers in reimbursement controversies involving government payors such as Medicare and Medicaid. 


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