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Implications of the repeal of the individual mandate on uncompensated care audits -- and what to do

With the mandate repealed, and DSH dollars unchanged, competition for that money is going to be fierce, experts predict.

Jeff Lagasse, Associate Editor

When the Affordable Care Act was passed, it came with an individual mandate: Get health insurance or be penalized. But the GOP, always a fierce critic of former President Barack Obama's signature healthcare law, has since repealed the individual mandate altogether.

Hospitals are feeling the pinch as a result, and it complicates the picture when it comes to uncompensated care audits conducted by the federal government. As if there weren't enough pressure points already -- here's yet another.


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The intent of the ACA was that there would be a decline in the uninsured population as the ranks of the insured grew. One of the provisions of the law was aimed at reducing the dollars for disproportionate share amounts, which are used to reimburse hospitals for uncompensated care. The majority would go to fund ACA programs.

There was cost reporting attached to that, as hospitals were tasked with reporting their uncompensated care under DSH. The reporting is now based on the actual cost of uncompensated care, instead of the Medicare compensation rate, which has been used previously.

As the ACA progressed and more people were insured, the dollars needed for DSH would be reduced. Or at least that was the idea.

"With the rollback of the ACA and in particular the individual mandate, that drives up the amount of the underinsured or uninsured population, and those DSH dollars have not changed," said John Barry, assurance partner at The BDO Center for Healthcare Excellence and Innovation. "The competition for those dollars is going to be fierce."

According to Steven Shill, partner and national leader at BDO, hospitals are feeling the pinch because of the reimbursement environment they're experiencing.

"They're getting hit with pressure from all sides," said Shill. "Something that was meant to alleviate some of those pressures has in turn created a further pressure point. I think it'll probably help drive further consolidation, further bankruptcies, further restructuring, simply because you're not creating equal dollars here. You're trading dollars hospitals were getting paid under the ACA with lesser dollars the hospital will have to fight for under the DSH program."

And it goes further than that. Aside from dealing with people who are going to drop out of the ACA altogether, there are also increasingly high copayments and deductibles. Both have swelled substantially, and will likely hinder the ability of many people to meet their deductible payments and pay for their healthcare.

"It's on all fronts that hospitals are going to be feeling the pinch," said Shill. "Even from a compliance standpoint, this thing that's been implemented is going to have a lot of compliance dollars put on it, because CMS said, 'Not only are we going to do this, we're going to hold you to it and audit the thing.' It's going to require a lot of allocation of internal resources."


Costly compliance efforts can impact the entire revenue cycle. It requires providers to address specific charity care issues on the front end -- what the patient goes through to get admitted -- and track them all the way through to the financial services segment of the revenue cycle. Charity care processes and procedures all have to be put under the microscope.

Ultimately, said Shill, it feeds through directly into accounting revenue recognition. The revenue recognition cycle and the accounting literature related to it is undergoing a major change. There's a shift to the 606 methodology -- an accounting term referring to revenue from contracts with customers -- which requires five determinants to qualify.

With the ACA and the reduction in uncompensated care, that revenue recognition and determination of the transaction value would become a little easier.

"It requires the accounting people to be on their toes," said Shill. "This is a major issue, because the inability to appropriately address it could result in the non-allowance of revenue recognition. You've got a number of things happening making things difficult for hospital administrators."


Shill and Barry said addressing the issue boils down to three things: Documentation, education, and communication.

It's critical to put board members on notice to understand what the impact could be. Nonprofits may want to have conversations with their board trustees. There needs to be the capability to model what the impact would be and assess the impact on the longer-term financial needs of the organization.

One of the key things hospitals can do on a day-to-day basis is make sure the charity care practices are in place, and ensure all of necessary uncompensated care items are included in the charity care policy.

Patient-level documentation of care on the EHR is also a must. So is including the charity and uncompensated criteria on billing systems and medical records, to reduce the amount of questions that can arise during an audit.

"One if the things I would recommend hospitals doing (is) to actually provide almost a dry-run type audit of the process," said Shill. "In other words, let's not wait until the feds come in and start looking at this stuff and finding errors. Let's bring in a knowledgeable professional who understands the nuances, and give both management and the board comfort that they're doing things the right way. You get an independent view."


"As we look to the future, the biggest thing is the focus of value-based care," said Barry. "I think that's going to be a big consideration. When we look at the uninsured population, the rise of high-deductible health plans is going to be an important consideration for hospitals. The dollars being spent today are based on assessments from three years ago, so today's dollars we're getting are probably not going to be sufficient to cover what the current census looks like, given some of the rollbacks."

Shill pointed out the number of hospitals that are closing, particularly in rural areas, and predicted there will be continued pressure on the acute care part of the sector.

"From a consumer standpoint, you're probably going to see a duel type of healthcare system emerging: one which is going to be driven by the commercial plans -- which as employees we're kind of used to -- and then we're going to see one, or several, that are going to be catering to the indigent community or the working poor.

"They're going to be way different," he said. "You might even see providers specializing in one area or another area. I think you'll see a dualistic system, ultimately. You'll see a lot of business failures and a lot of significant investment in the healthcare system to remedy these problems."

Twitter: @JELagasse

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