Hospital EHR Incentive Calculations: The Bed-Days and Charity Charges Behind the Payment

Hospital EHR incentive payment calculation errors can begin with the wrong cost-report period, nonacute services counted as acute care, or bad debt counted as charity care. Those figures determine how much taxpayer money a hospital receives for health care technology. If you prepared the figures and questioned what went into them, you may know where the calculation went wrong and who decided to use it. Those decisions matter when we assess electronic health records fraud.

The hospital’s meaningful-use attestation addressed whether it qualified for an incentive. Its financial calculation determined how much it received. The HHS Office of Inspector General’s December 2019 Medicare hospital audit followed that calculation through cost reports, supporting records and payments. It found errors on both sides of the transaction: hospital figures that were wrong and hospital activity that the Centers for Medicare & Medicaid Services left out.

How the Medicare Hospital EHR Incentive Payment Was Calculated

The historical Medicare acute-care hospital formula combined a discharge-related amount, the Medicare share and a transition factor tied to the payment year. These were the incentive calculations examined for payments from January 1, 2013, through September 30, 2017.

The discharge-related amount started with a $2 million base and added $200 for each acute-care inpatient discharge from the 1,150th through the 23,000th discharge. Discharges outside that band added nothing. The transition factor reduced the available incentive as the hospital moved through its payment years.

The Medicare share put Medicare Part A and Medicare Advantage Part C acute-care inpatient bed-days in the numerator. The denominator used total acute-care inpatient bed-days multiplied by the fraction of hospital charges remaining after charity-care charges were removed.

A cost-report line supplied a starting number. The EHR incentive formula required particular categories within it.

Where Hospital EHR Incentive Payment Calculation Errors Began

Hospital EHR incentive payment calculation errors began in the reporting periods and care categories behind the submitted totals. The inspector general checked hospital supporting documentation against the cost-report figures and reconciled it with the Centers for Medicare & Medicaid Services payment data.

The Reporting Period Changed the Inputs

Initial Medicare incentive payments used the hospital’s most recently submitted 12-month cost report. Final payments generally used the settled report for the hospital fiscal year beginning on or after the first day of the program year. An amended report, a discovered error or the later report could change the initial payment.

The audit found hospitals using data from more than a year or the wrong cost-reporting period. For someone who prepared the calculation, the dates on the underlying records matter as much as the total copied into the worksheet.

Acute-Care Days Had to Be Acute-Care Days

Psychiatric, rehabilitation and skilled nursing facility activity did not belong in the acute-care discharge and bed-day inputs. Observation and outpatient services also fell outside those inpatient inputs. Routine nursery days were excluded, while intensive-care services belonged in the calculation. The Medicare audit found nonacute services included and intensive-care services omitted.

Charity Care Required Its Own Accounting

Charity care reflected services provided free or at a discount under the hospital’s charity-care or financial-assistance policy. When hospitals used uncompensated-care data as a substitute for unavailable charity-care data, they had to remove bad debt. The audit found bad debt included in charity-care charges.

That is a direct connection between patient-account categories and the incentive payment. A total taken from a cost report could still need adjustment before it entered the charity-care part of this calculation.

What the Medicare Hospital Audit Found

The inspector general found incorrect calculations in 50 of the 99 sampled net incentive payments. It estimated $93.6 million in incorrect net payments across the audit population, less than 1% of the $10.8 billion covered. The sample included both overpayments and underpayments.

The Centers for Medicare & Medicaid Services also left reported labor and delivery days out of its calculation. For cost-reporting periods beginning on or after October 1, 2013, those days belonged in the Medicare and total inpatient-day counts. The omission understated total inpatient days and inflated payments.

The Medicare Administrative Contractors had not reviewed supporting documentation for every hospital’s calculation. The Centers for Medicare & Medicaid Services said it made initial payments without that review to get the incentive paid promptly, with contractor reviews and adjustments afterward. For an insider who questioned a figure, the relevant trail includes the original calculation, any revised calculation and the payment that followed each. We want to know who supplied a number and who changed or omitted it.

Texas Medicaid Used a Different Calculation

The Medicaid calculation problem extended beyond Texas. The December Medicare report cited 17 earlier Medicaid audits that found states had overpaid hospitals by $66.7 million because of inaccurate incentive calculations.

Medicaid hospital EHR incentive payments used a one-time calculation of an overall EHR amount multiplied by a Medicaid share. The overall amount modeled four years of discharge-based amounts and transition factors, including projected discharge growth. Texas then distributed the resulting incentive over three years. A wrong starting calculation could carry into later installments.

The Medicaid share used Medicaid and Medicaid managed-care acute-care inpatient bed-days over total acute-care inpatient bed-days adjusted for charity care. Unpaid Medicaid managed-care days had to come out. Eligibility also had a separate patient-volume test based on encounters, so the encounter count and the bed-day input answered different questions.

In its August 2015 Texas audit, the inspector general reviewed 45 hospitals selected for their larger payments in 2011 and 2012, including subsequent payments through December 2014. It found that the Texas Health & Human Services Commission overpaid 26 hospitals by $13,904,716 and underpaid 12 by $1,439,584. The errors moved money in both directions.

The state had instructed hospitals to exclude nonacute services but had not ensured they did so. It also used the wrong cost-report period for hospitals whose fiscal year ended in December. For hospitals first paid in 2011, the report describes the state using reports ending in December 2010 when it should have used December 2009.

The sharpest finding concerned hospitals that questioned the number before the state used it:

We find that response extraordinary. The hospitals identified the bad debt, and the agency pointed back to guidance identifying where the number sat on the cost report. The warning reached the payer. The instruction was still to use the wrong amount. Texas defended its methods as following the Centers for Medicare & Medicaid Services’ approvals and guidance, but the inspector general found that the required exclusions were missing.

What a Hospital Finance Insider Can Show

An insider can connect the underlying activity to the number submitted, the instruction governing it and the payment affected. The person who questioned a category or reporting period may also know how the hospital, contractor or agency answered. Those exchanges can explain why a disputed figure survived into the calculation.

Knowingly submitting a false claim for government payment can support a False Claims Act case. The law also reaches a business that knowingly causes someone else to submit a false claim.

The financial records show the payment effect, while your knowledge can explain the decisions behind them. We examine that trail with you to build the case. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

When You Questioned the Number

If you prepared or reviewed a hospital’s incentive calculation and know why a disputed figure stayed in it, speak with our whistleblower experts about the payment and the decision behind it. We work with you to build your strongest hospital EHR incentive case and bring in healthcare fraud whistleblower lawyers who understand hospital payment records. We stay beside you from that first conversation through the case.