DSH, IME, and the Expansion Population
Harborview Teaching Hospital is a 330-bed acute care hospital with a December 31 fiscal year end, located in a state that expanded Medicaid coverage through an 1115 demonstration waiver rather than a State Plan amendment. FY2025 statistics: 21,000 total Medicare Part A inpatient days; 3,150 days for patients entitled to both Part A and SSI; 4,900 Medicaid days, of which 1,300 are Medicaid managed care enrollees; and 2,600 days covered only through the 1115 expansion demonstration. The hospital reports 62 residents on its roster, including 9 who spend 40 percent of their time in research, 5 who rotate at the adjacent VA where the VA pays their salaries, 8 who spend three months a year at a non-hospital clinic the hospital pays for, and 4 who work half time. It received $1.2 million in state Medicaid DSH payments and wants to know how those affect its Worksheet S-10 computation.
1. Compute the DSH percentage components and explain which categories count and why.
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Formula: (SSI days + Medicaid State Plan days) divided by total Medicare Part A days.
SSI days: 3,150. Medicaid days: 4,900, including the 1,300 managed care days. Enrollees in a Medicaid managed care plan remain Medicaid-eligible under the State plan; the delivery system does not change eligibility, so those days count. Do not let a reviewer's question about capitation talk you out of them. Excluded: the 2,600 days covered only through the 1115 demonstration. The DSH day count looks to medical assistance under a State plan, and waiver-only coverage is not State plan eligibility even though the same agency administers both. If the state had expanded by State Plan amendment, those same days would count - the distinction is legal, not factual, which is exactly why it is tested.
Numerator: 3,150 + 4,900 = 8,050. Denominator: 21,000. DSH percentage = 8,050 / 21,000 = 38.33 percent.
Two cautions. First, the percentage is not the payment: the statutory formula blends a fixed component with the hospital's percentage, and most of the payment now runs through the uncompensated care pool. Second, the day count must be supportable record by record - the denominator shrinks and the percentage rises when auditors remove days, and the percentage is recomputed at settlement.
2. Determine the IME resident FTE count and explain the effect of each adjustment.
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Start at 62 and convert to countable FTE.
- 9 residents spending 40 percent of time in research: research time is not countable for IME. Deduct 9 x 0.40 = 3.6 FTE. This is the most frequently challenged adjustment because GME rosters report headcount and research months separately.
- 5 residents at the VA whose salaries the VA pays: the hospital does not incur the cost and cannot count them. Deduct 5.0.
- 8 residents rotating three months at the non-hospital clinic the hospital pays for: countable in full where the hospital pays the salary, the time is patient care under an approved program, and a written agreement is in the file. No adjustment - but the agreement and the payment records must exist, or the adjustment comes back on audit.
- 4 half-time residents: count 0.5 each. Deduct 2.0.
Countable FTE = 62 - 3.6 - 5.0 - 2.0 = 51.4. Resident-to-bed ratio = 51.4 / 330 = 0.156.
Direction: each deduction lowers the ratio and therefore the IME adjustment. The risk here is documentation, not arithmetic. A hospital that reports 62 because that is what the roster says will lose the entire research and VA adjustment on audit plus the credibility of the rest of its submission.
3. How do the $1.2 million of state Medicaid DSH payments affect the Worksheet S-10 computation, and what other S-10 judgments does this fact pattern raise?
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The state DSH payment is Medicaid revenue and reduces the Medicaid shortfall. The uncompensated care figure on S-10 is built from charity care, non-Medicare bad debt net of recoveries, and the Medicaid shortfall (allowable Medicaid cost minus Medicaid payments). State supplemental DSH payments are payments for this purpose. A hospital that books them somewhere else and reports only fee-for-service Medicaid receipts overstates its uncompensated care, inflates its Factor 3 amount, and creates a clean, easily quantified audit finding - the MAC has the state's payment file.
Other judgments this fact pattern forces:
- Charity care must follow the hospital's written financial assistance policy, be net of any amounts received, and be documented at the account level.
- Bad debt must be net of recoveries and must exclude Medicare bad debt, which is claimed separately on the cost report.
- The 1115 waiver population must be handled consistently with the S-10 instructions, which key on Title XIX eligibility. The defensible treatment for waiver-only days is to exclude them from the Medicaid shortfall and from low-income insured days, and to disclose the treatment in the workpapers.
- The 4,900 Medicaid days used for DSH and the days and dollars used for S-10 are separate computations with separate rules; do not let one feed the other by default.