General DSH Audit and Reporting Protocol

INFORMATION NOT RELEASABLE TO THE PUBLIC UNLESS AUTHORIZED BY LAW:

This information has not been publicly disclosed and may be privileged and confidential. It is for internal government

use only and must not be disseminated, distributed, or copied to persons not authorized to receive the information.

Unauthorized disclosure may result in prosecution to the full extent of the law.

Areas of Responsibility

States:

1. States are responsible for obtaining the independent audit on an annual basis

• In response to the statutory language, “independent,” audits must be certified

by Single State Audit Agency or any other CPA firm that operates

independently from the Medicaid agency and the subject hospitals. States

may not rely on non-CPA firms, fiscal intermediary, independent certification

programs currently in place to audit UCC, nor expand hospital financial

statements to obtain audit certification of the hospital specific DSH limits.

• The Single State Audit is an Office of Inspector General process. Although

there may be some overlap in resources used to complete both audits, the

DSH Audit is particular to Medicaid and is the sole responsibility of CMS to

enforce and monitor and thus cannot be combined within the Single State

Audit Act.

2. Providing the auditor and the DSH hospitals subject to audit with instructions on

the data elements necessary to insure compliance

• The DSH audit will rely on existing cost reporting tools and documents as

primary sources for the data necessary to evaluate DSH payments against

hospital specific DSH costs. Two of the primary source documents are the

Medicare 2552-96 hospital cost report and audited hospital financial

statements (and other auditable hospital accounting records). Rather than

requiring that states or hospitals create new documents and potentially new

financial standards, CMS will rely on the financial standards that apply to the

use of these documents in their current form. Any hospital participating in the

Medicare program already completes the Medicare 2552-96 cost report and is

familiar with the accounting standards applicable to this document. Similarly,

hospital financial statements are subject to certain financial reporting

standards to produce the information that will be used in the DSH audit. Each

of these documents will produce data used to develop cost and payment

information for the DSH audit using the financial reporting standards

applicable to each.

• Developing audit protocol for use by DSH hospitals to determine costs. This

protocol should include instructions identifying the relevant sections of the

cost report that reflect costs eligible for inclusion in developing the hospital

specific DSH limit and must replace any current DSH survey information

utilized by states. This protocol should include identification of all relevant

hospital cost reports and financial statements and other auditable hospital

accounting records associated with the audited Medicaid State plan rate year.

Situations in which a hospitals fiscal year does not coincide with the Medicaid

State plan rate year, hospitals will need to provide the two (or more, if there

are short-period, i.e., less than twelve-month, cost reports involved)

CMS-2198-F 2

overlapping cost reports and financial statements and other auditable hospital

accounting records to properly reflect cost incurred during the full State Plan

rate year.

3. Provide DSH hospitals and auditor with fee for service (FFS) Medicaid IP and OP

hospital days and charges based on Medicaid Management Information System

(MMIS) data for the cost reporting period(s) covering the Medicaid State plan

rate year under audit.

4. Provide DSH hospitals and auditor with all information related to IP/OP hospital

regular Medicaid rate payments (including all rate add-ons), all Medicaid

supplemental and enhanced payments, and all DSH payments made to each DSH

hospital for the cost reporting year(s) covering the State plan rate year.

5. Provide auditor with methodologies utilized by the State to determine DSH

eligible hospitals under the Medicaid State plan (LIUR, MIUR, Other) and

payment methodologies used to generate DSH payments under the approved

Medicaid State plan.

6. Provide auditor with hospital-generated IP/OP hospital cost report information;

Medicaid managed care IP/OP hospital days, charges, and payment information;

and uninsured IP/OP hospital days, charges, and payment information received

from DSH hospitals.

7. Report the findings of the audit to CMS within 90 days of receiving audit. In

recognition of timing issues related to initiating the audit process. States may

concurrently complete the Medicaid State plan rate year 2005 and 2006 audits by

September 30, 2009. The report associated with Medicaid State plan rate years

2005 and 2006 are due no later than December 31, 2009 to CMS.

8. Use audit findings for rate year 2005 – 2010 to prospectively adjust DSH

payments beginning with Medicaid State plan rate year 2011.

9. Use audit findings for rate year 2011 to determine over/underpayments (final

report available in 2014).

DSH Hospitals:

1. Use the Medicare 2552-96 hospital cost report to determine cost center specific

routine per diems and ancillary ratios of cost to charges (RCC) based on Medicare

Cost Principles (Medicare cost allocation process).

2. Utilize MMIS data provided by the state for Medicaid FFS IP/OP hospital

ancillary charges and Medicaid FFS IP hospital routine days.

3. Utilize hospital financial statements and other auditable hospital accounting

records as source for IP/OP hospital Medicaid managed care ancillary charges

and routine days and IP/OP hospital uninsured ancillary charges and routine days

(individuals with no source of third party coverage). These charges and days will

be used with cost center specific RCCs and per diems, respectively, to allocate

hospital costs to each relevant payer category described above.

4. Utilize revenue information from financial statements and other auditable hospital

accounting records to identify payments made by or on behalf of patients with no

INFORMATION NOT RELEASABLE TO THE PUBLIC UNLESS AUTHORIZED BY LAW:

This information has not been publicly disclosed and may be privileged and confidential. It is for internal government

use only and must not be disseminated, distributed, or copied to persons not authorized to receive the information.

Unauthorized disclosure may result in prosecution to the full extent of the law.

CMS-2198-F 3

source of third party coverage for IP/OP hospital services. Note that payments for

IP/OP hospital services from state-only or local-only programs for the uninsured

should not be included as revenues.

5. Utilize revenue information from financial statements and other auditable hospital

accounting records to identify Medicaid payments not directly paid by the State in

which the hospital is located, including all IP/OP Title XIX payments from other

States (regular, supplemental and enhanced and DSH), all payments from

Medicaid managed care organizations for IP/OP hospital services provided to

Medicaid MCO enrollees, and all payments from other non-State sources for

Medicaid IP/OP hospital services.

6. Provide state with hospital specific cost and revenue data, including backup

documentation, so that independent auditor may utilize in developing audit report.

Continue to provide state information already required to determine DSH

qualifications (LIUR, MIUR, other).

Auditor:

1. Review State’s methodology for estimating hospital’s OBRA 1993 hospital-

specific DSH limit and the State’s DSH payment methodologies in the approved

Medicaid State plan for the State plan rate year under audit.

2. Review state’s DSH audit protocol to ensure consistency with IP/OP Medicaid

reimbursable services in the approved Medicaid State plan. Review DSH audit

protocol to ensure that only costs eligible for DSH payments are included in the

development of the hospital specific DSH limit.

3. Compile hospital specific IP/OP cost report data and IP/OP revenue data to

measure hospital specific DSH limit in auditable year. In determining this limit,

the auditor must measure both components of the hospital specific DSH limit. To

determine the existence of a Medicaid shortfall, Medicaid IP/OP hospital costs

(including Medicaid managed care costs) must be measured against Medicaid

IP/OP revenue received for such services in the audited State Plan rate year

(including regular Medicaid rate payments, add-ons, supplemental and enhanced

payments and Medicaid managed care revenues). Costs associated with patients

with no source of third party coverage must be reduced by applicable revenues

and added to any Medicaid shortfall to determine total eligible DSH costs.

4. Compile total DSH payments made in auditable year to each qualifying hospital

(including DSH payments received by the hospitals from other States).

5. Compare hospital specific DSH costs limits against hospital specific total DSH

payments in the audited Medicaid State plan rate year. Summarize findings

identifying any overpayments/underpayments to particular hospitals.

Data Sources:

The following are to be considered the primary data sources utilized by states, hospitals

and the independent auditors to complete the DSH audit and the accompanying report. In

many instances, hospital financial and cost report periods will differ from the Medicaid

INFORMATION NOT RELEASABLE TO THE PUBLIC UNLESS AUTHORIZED BY LAW:

This information has not been publicly disclosed and may be privileged and confidential. It is for internal government

use only and must not be disseminated, distributed, or copied to persons not authorized to receive the information.

Unauthorized disclosure may result in prosecution to the full extent of the law.

CMS-2198-F 4

State plan rate year. In these instances, hospitals should use multiple audited financial

reports and hospital cost reports to fully cover the Medicaid State plan rate year under

audit. The data should be directly allocated based on the months covered by the financial

or cost reporting period that directly related to the Medicaid State plan period under

audit. For instance, if a Medicaid State plan rate year runs from 7/1/04 to 6/30/05 but a

DSH hospital receiving payments under the Medicaid State plan operates its financial and

cost reporting based on a calendar year, the hospital would need to use financial and cost

reports for calendar years 2004 and 2005. The hospital would allocate 50% of all costs

and revenues in each financial and cost reporting period to determine costs and revenues

associated with the Medicaid State plan rate year 2005.

1. MMIS Data

• State MMIS generated IP hospital payments, ancillary charges and routine days

for the cost reporting period(s) covering the Medicaid State plan rate year under

audit for each DSH hospital.

• State MMIS generated OP hospital payments and ancillary charges for the cost

reporting period(s) covering the Medicaid State plan rate year under audit for

each DSH hospital.

2. Approved Medicaid State Plan

• LIUR, MIUR or other DSH hospital determination criteria and data used to

determine eligibility for the Medicaid State plan rate year under audit.

• Medicaid State Plan DSH payment methodologies for the Medicaid State plan

rate year under audit.

• State DSH payments to each DSH hospital for the Medicaid State plan rate year

under audit.

• State methodology for determining the hospital-specific DSH limit, the data used

to determine such limit and the hospital-specific cost limit generated by

methodology and data for the Medicaid State plan rate year under audit.

3. Medicare 2552-96 Hospital Cost Report

• Medicare 2552-96 hospital cost report(s) for the Medicaid State plan rate year

under audit (finalized when available, or as filed).

4. Audited Hospital Financial Statements and Other Auditable Hospital

Accounting Records

• Hospital revenues from Medicaid managed care organizations, Medicaid

payments from other States (regular payments including add-ons, supplemental

and enhanced payments, DSH payments), and Medicaid IP/OP hospital payments

from all sources other than the State from hospital financial reports and records

for the cost reporting period(s) covering the Medicaid State plan rate year under

audit.

• Hospital revenues from or on behalf of with no source of third party coverage for

the hospital services provided.

INFORMATION NOT RELEASABLE TO THE PUBLIC UNLESS AUTHORIZED BY LAW:

This information has not been publicly disclosed and may be privileged and confidential. It is for internal government

use only and must not be disseminated, distributed, or copied to persons not authorized to receive the information.

Unauthorized disclosure may result in prosecution to the full extent of the law.

CMS-2198-F 5

• Days and charges for IP/OP Medicaid hospital services for services provided to

out of state Medicaid patients.

• Days and charges for IP/OP hospital services provided to patients with no source

of third party coverage for the hospital services provided.

• Days and charges for IP/OP hospital services provided to Medicaid managed care

patients.

General Cost Determination: Uncompensated Care Cost Determination

Hospitals must use the Medicare 2552-96 Hospital Cost Report(s) for the Medicaid State

plan rate year to determine allowable IP/OP Medicaid service costs and costs of

providing IP/OP hospital services to patients with no source of third party coverage for

the hospital services provided.

The Medicare cost allocation process will be used to determine facility costs for inclusion

in determining DSH eligible hospital costs. In order to provide complete financial

information for the Medicaid State plan rate year under audit, hospitals must use two or

more Medicare costs reports if the cost reporting period does not correspond with the

Medicaid State plan rate year under audit. Once costs are allocated according to the

Medicare cost allocation process, those costs should be allocated to the Medicaid State

plan rate year on a pro-rata basis to develop 12 full months of costs.

1. Hospitals determine IP FFS Medicaid costs

Hospitals must follow the cost reporting and apportionment process as prescribed

by the 2552-96. In the 2552-96, a per diem is computed for each routine cost

center, and a cost-to-charge ratio is computed for each ancillary/non-routine cost

center. In the Worksheet D series of the 2552-96, total allowable costs from each

routine cost center are apportioned to a specific program by applying that cost

center's program days to the cost center's computed per diem, and total allowable

costs from each ancillary/non-routine cost center are apportioned to a specific

program by applying that cost center's program charges to the cost center's

computed cost-to-charge ratio.

The program data used in this apportionment process in determining hospital

inpatient fee-for-service Medicaid costs are the days and charges pertaining to

hospital inpatient services furnished to Medicaid fee-for-service individuals. The

primary source of the program data is the MMIS. The program days and charges

must pertain: a) only to services furnished by the hospital and its departments and

not by any non-hospital component (even if such component is deemed to be

hospital-based); b) only to inpatient hospital services and not services furnished

by practitioners which can be billed separately as professional services; and c)

only to services paid by Title XIX fee-for-service. As required by the 2552-96

INFORMATION NOT RELEASABLE TO THE PUBLIC UNLESS AUTHORIZED BY LAW:

This information has not been publicly disclosed and may be privileged and confidential. It is for internal government

use only and must not be disseminated, distributed, or copied to persons not authorized to receive the information.

Unauthorized disclosure may result in prosecution to the full extent of the law.

CMS-2198-F 6

cost report apportionment process, the program data must be reported by hospital

cost centers.

By applying program days defined above to the cost-report-computed per diems

and applying program charges defined above to the cost report-computed cost-to-

charge ratios, and by following the established 2552-96 cost reporting and

apportionment process, the hospital will determine its hospital inpatient fee-for-

service Medicaid cost

2. Hospitals determine IP Medicaid managed care costs