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PA Bulletin, Doc. No. 02-1317


Hospital Uncompensated Care Program Uniform Reporting Requirements

[32 Pa.B. 3672]

   The purpose of this notice is to provide public notice of the uniform reporting requirements for the Hospital Uncompensated Care Program (Program) as required by section 1103(d) of the Tobacco Settlement Act (act) (35 P. S. § 5701.1103(d)).


   The act, signed into law by Governor Tom Ridge on June 26, 2001, created the Program to be administered by the Department of Public Welfare (Department). The Program provides for the disbursement of appropriations from the Tobacco Settlement Fund, as established in section 303(a) of the act (35 P. S. § 5701.303(a)), to annually compensate hospitals for a portion of the uncompensated care they provide to uninsured and underinsured patients.

   The Department, in consultation with the Health Care Cost Containment Council (Council), established an Advisory Committee to assist the Department and the Council in improving the information collected and used to determine payments to hospitals under the Program. The Committee members included individuals with expertise in hospital administration, finance and reimbursement, hospital patient account management and representatives of the Department and the Council.

   The Department is required to provide public notice of the uniform reporting requirements for the Program. The Advisory Committee's recommendations have been incorporated into these requirements.


   For hospital fiscal years beginning on or after January 1, 2002, hospitals shall report uncompensated care information to the Council and the Department as set forth in this notice and sections 1103--1105 of the act (35 P. S. §§ 5701.1103--5701.1105). As delineated by section 1104(b)(6) of the act, hospitals must submit the required data to be eligible for the Program.

   Hospitals shall submit the uncompensated care data outlined in Section A of this notice to the Council as part of the Council's annual financial filing process. The Council's annual filing deadline will be November 30, unless extended by the Council.

   The Department will require that hospitals submit an annual attestation of their compliance with the Program requirements of the act to the Office of Medical Assistance Programs, Bureau of Fee-for-Service Programs, in a manner prescribed by the Department.

   A.  Reporting of Uncompensated Care

   Consistent with industry practice, the Council relies on the prevailing AICPA Audit and Accounting Guide--Health Care Organizations and the Health Care Management Association, Principals and Practice Board's ''Valuation & Financial Statement Presentation of Charity Care Service & Bad Debts by Institutional Healthcare Providers'' as the guidelines for reporting bad debt and charity care. As a part of its annual financial filing requirements, the Council has established a few additional standards to ensure uniform reporting among hospitals in this Commonwealth. To facilitate an equitable implementation of the act, the Advisory Committee has recommended a few amendments to the Council's reporting requirements.

   1.  Charity Care

   Section 1102 of the act (35 P. S. § 5701.1102) defines charity care expense as ''[t]he cost of care for which a hospital ordinarily charges a fee but which is provided free or at a reduced rate to patients who cannot afford to pay but who are not eligible for public programs and from whom the hospital did not expect payment in accordance with the hospital's charity care policy.''

   The Council's current reporting requirements for charity care expenses are consistent with the act's provisions, and there are no changes in the way hospitals report annual expenses for charity care.

   Charity care shall be recorded as the foregone charges for unreimbursed care consistent with the hospital's charity care policy and established schedule of fees.

   Shortfalls between third-party reimbursements and a hospital's charges are not included in charity care. If a patient's third-party insurance does not provide any reimbursement for specific services, these uncovered services are eligible to be included as charity care.

   If a hospital waives or reduces a copayment or deductible, those foregone fees may not be included in charity care. A patient's inability to pay a copayment or deductible is eligible for charity care.

   Hospitals may not include community service unless the service involves a medical service for which a fee is charged to the general patient population.

   2.  Bad Debt

   Section 1102 of the act defines ''bad debt expense'' as ''[t]he cost of care for which a hospital expected payment from the patient or a third-party payor, but which the hospital subsequently determines to be uncollectible.''

   The only change in the Council's current reporting requirements for bad debt expense is that all bad debt expense shall be reported as charges. Currently, there is some variation among hospitals in the extent that bad debt is recorded as charges.

   Consistent with current Council reporting requirements, reimbursements denied by third-party insurers may only be recognized as bad debt if the services provided were beyond the scope of services covered by the insurer.

   B.  How the Council will Calculate Uncompensated Care Costs

   Consistent with act's definition of uncompensated care (see section 1102 of the act), the Council will add each hospital's charges for bad debt and charity care to generate uncompensated care charges. Since bad debt expenses and charity care expenses will both be reported as charges, variations in individual hospital policies on extending charity care should not have a significant effect on the level of uncompensated care for purposes of payment calculations under the act.

   In defining uncompensated care, section 1102 of the act states that ''[t]his cost shall be determined by the Council utilizing reported data and the hospital's cost-to-charge ratio.'' The cost-to-charge ratio is the ratio of each hospital's total cost of providing patient care to the total charges for patient care.

Cost-to-Charge Ratio =
Annual Patient Care Expenses
Annual Patient Charges

   The Council receives total patient care charges from every hospital as part of the hospital's annual financial filing. The Council, however, does not receive data on the annual total cost to provide patient care.

   The Advisory Committee considered a variety of means for the Council to capture annual patient care costs including:

   *  Expanding the Council's annual filing requirements to include patient care costs. The problem with this approach is that there are numerous functions in hospi-tals that transcend patient care and other hospital operations, such as food service, education, maintenance, utilities and real estate. To ensure uniform reporting, the Council would need to develop a complex set of new reporting guidelines, subjecting hospitals to a new and costly set of recordkeeping and reporting requirements. In many cases, the additional costs to track patient care expenses would exceed the potential payment to hospitals under the Program.

   *  Utilizing the total operating expenses in lieu of patient care costs. An analysis of Council data reveals that the ratio of net patient revenue to total operating revenue varies between 65% to nearly 100% of the hospitals in this Commonwealth. Consequently, the extent that hospitals engage in nonpatient care activities varies considerably. If total operating expenses were utilized, hospitals that engage in a larger portion of nonpatient care activities would have an artificially higher cost-to-charge ratio, and consequently their uncompensated care costs would be inflated.

   *  Utilizing Medicare and Medical Assistance cost reports. These reports are not the best source of information for a variety of reasons. For example, the Medical Assistance cost report does not include information on all hospital operations.

   The filing deadline for the Medicare cost report was recently extended to April for those hospitals with a fiscal year ending on June 30. The information from the Medicare cost reports may not be available for the Department to distribute funds in a timely manner.

   The Medicare cost reports filed by a substantial number of hospitals do not coincide with the financial data hospitals file with the Council because the Medicare cost report covers a different time period and/or a different scope of operations than the ''hospital'' data filed with the Council. The Council's analysis reveals that variations in the reporting period and scope of operations result in significant differences in the cost-to-charge ratios.

   While the Council does not have a source of consistent patient care cost data, it does have consistent audited net patient revenue, total operating revenue and total operating cost data. Consequently, the Committee explored the feasibility of utilizing revenue data to estimate patient care expenses. The Committee ultimately determined that the ratio of net patient revenue to total operating revenue provides a reasonable estimate of the ratio of patient care costs to total operating costs.

Net Patient RevenuePatient Care Costs
Total Operating Revenue Total Operating Costs

   Using a sample of hospitals, the Committee compared the cost-to-charge ratio developed using the estimated patient care costs to a cost-to-charge ratio utilizing data from Medicare cost reports. Whenever the revenue and charge data from the Medicare cost report was similar to the annual financial data filed with the Council, the cost-to-charge ratio using the estimated patient care costs was within 1.5% of the cost-to-charge ratio using Medicare data. In some instances, corrections will have to be made for hospitals with certain categories of revenues that do not have associated operating costs such as large retroactive third-party revenue adjustments or when relatively large amounts of contributions or investment income is included in operating revenue.

   The Council will annually provide each hospital with documentation on how its individual cost-to-charge ratio is calculated and hospitals will have an opportunity to address the ratio through the Council's verification process.

   C.  Plan to Serve the Uninsured and Procedures for Collecting Bad Debt

   Section 1104(b) of the act states that to be eligible to apply for payment under the Program, a hospital has to have a plan in place to serve the uninsured and meet the following six specific eligibility requirements listed as follows:

   Accepts all individuals, regardless of the ability to pay for emergent medically necessary services within the scope of the hospital's service.

   Seeks collection of claims, including collection from an insurer or payment arrangements with the person who is responsible for payment of the care rendered.

   Attempts to obtain health care coverage for patients, including assisting patients in applying for Medical Assistance, the Children's Health Insurance Program or the Adult Basic Coverage Insurance Program.

   Ensures that an emergency admission or treatment is not delayed or denied pending determination of coverage or requirement for prepayment or deposit.

   Posts adequate notice of the availability of medical services and the obligation of a hospital to provide free services.

   Provides necessary data to Council.

   To qualify for funding, a hospital will be required to annually complete a form supplied by the Department that will attest to the hospital's compliance with these requirements.

   D.  Upper Limit on Payments

   In compliance with Federal law and the act, the Department adheres to the hospital-specific disproportionate share payment (DSH) upper limit which limits DSH payments to no more than 100% of costs related to caring for Medical Assistance patients and/or uncompensated costs related to caring for indigent patients.

   The Department, in accordance with the upper limit assurances in Federal law and section 1104 of the act, may withhold payments under the Program to a hospital that exceeds the hospital's specific DSH upper limit. Furthermore, section 1106 of the act (35 P. S. § 5701.1106) requires that the total amount of funds received by a hospital shall not exceed the uncompensated care amount derived by the Council. Accordingly, the Department will limit a hospital's payments under the Program to this amount.

   The Department will request the necessary data to determine hospital specific DSH upper payment limits. The Department will amend the Pennsylvania Medical Assistance Hospital Cost Report (MA 336) for the Fiscal Year 2001-2002 reporting period.

Contact Person

   A copy of this notice is available for review at local County Assistance Offices. Interested persons are invited to submit written comments to this notice within 30 days of this publication. Comments should be sent to the Department of Public Welfare, Office of Medical Assistance Programs, Bureau of Fee-for-Service Programs, Attention William T. Miller Jr., P. O. Box 8047, Harrisburg, PA 17105-8047.

   Persons with a disability may use the AT&T Relay Service by calling (800) 654-5984 (TDD Users) or (800) 654-5988 (voice users).


[Pa.B. Doc. No. 02-1317. Filed for public inspection July 26, 2002, 9:00 a.m.]

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