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February 01, 2018

Worksheet S-10 and Hospitals’ Uncompensated Care: A Moving Target That Is More Important Than Ever

Mark Polston and Elizabeth Swayne, King & Spalding, LLP, Washington, DC

Long-threatened in preamble language,1 the Centers for Medicare & Medicaid Services (CMS) has finally begun to include cost report Worksheet S-10 data in the calculation of hospitals’ Uncompensated Care (UCC) pool payments.  Although Worksheet S-10 data only makes up one-third of the calculation of an individual hospital’s UCC payments in fiscal year (FY) 2018, by FY 2020 it is expected to account for 100 percent, and hospitals are wise to ensure that they are fully capturing their allotted share of a multi-billion dollar pie.2  Many hospitals have questions about how best to complete their Worksheet S-10, and CMS has issued several sets of instructions recently to further clarify how to report charity care and bad debt charges.  Most recently, CMS has indicated that in addition to typical charity care, hospitals can also account for care under their financial assistance policies for self-pay patients.  This article explores CMS’s evolving Worksheet S-10 policies and considers how hospitals might best implement and record charges under their charity care and financial assistance policies.

The Change to the Uncompensated Care Pool and Inclusion of Worksheet S-10 Data

Since the 1980s, hospitals serving a significantly disproportionate number of low-income patients have been eligible for a Medicare disproportionate share hospital (DSH) payment adjustment, the size of which varied based on the number of patients served who were eligible for Medicaid or entitled to Supplemental Security Income (SSI) cash assistance, which is meant to provide cash to aged, blind, and disabled people with little or no income to meet basic needs for food, clothing, and shelter.3  The more patients meeting these criteria that a hospital served, the higher its DSH payment in general.  An important feature of historical DSH payments is that they were calculated individually for each hospital, without limit or comparison to other hospitals.  That all changed under the Patient Protection and Affordable Care Act (PPACA), which reduced these historical DSH payments (referred to as “empirically justified” DSH payments in PPACA) by 75 percent for each year starting in FY 2014 and supplemented those diminished payments with a new UCC pool calculation.4

To calculate the UCC pool, CMS estimates the amount of Medicare DSH payments it would have otherwise made nationally under the empirical DSH formula, multiplies that number by 25 percent and further reduces it based on a factor that estimates the change in national uninsured rates since 2013 due to PPACA programs like Medicaid expansion and insurance exchanges.5  The third and final step, which determines exactly how much each individual hospital will receive, is to apply a quotient representing the “amount of uncompensated care for such hospital for a period selected by the Secretary (as estimated by the Secretary, based on appropriate data (including, in the case where the Secretary determines that alternative data is available which is a better proxy for the costs of . . . hospitals for treating the uninsured, the use of such alternative data))” compared to the national estimated amount.6  This quotient is known as “Factor 3.”  The key difference between the UCC pool and DSH payment is that the UCC pool is comparative and a zero-sum game:  if Hospital A’s Factor 3 (and associated UCC payment) increases, Hospital B’s UCC payment necessarily decreases. 

Since enactment, CMS has struggled with how best to capture data that reflects a hospital’s amount of “uncompensated care” as required by the statute.7  Although CMS initially felt that hospital cost report “Worksheet S‑10 could potentially provide the most complete data for Medicare hospitals,” it acknowledged stakeholder concerns about Worksheet S-10 standardization and completeness.8  Therefore, starting in FY 2014, instead of using Worksheet S‑10 data, CMS used alternative data it determined to be a “better proxy”:  inpatient days of Medicaid patients plus inpatient days of Medicare SSI patients.

In the years that followed, CMS continued to explore the data source for Factor 3, weighing whether Worksheet S-10 was appropriate with each Inpatient Prospective Payment System (IPPS)9 rulemaking, but never actually putting Worksheet S‑10 to use.10  Recently, however, despite ongoing stakeholder concerns about “inconsistent reporting” and “inadequate and unreliable data,”11 CMS believed a “tipping point” had been reached and it could “no longer conclude that alternative data . . . are a better proxy for the costs of . . . hospitals for treating individuals who are uninsured than the data on uncompensated care costs reported on the Worksheet S-10.”12  CMS compared Worksheet S-10 data to IRS Form 990 data (another measure of charity care) from the same years, and found them to be “highly correlated.”13  Therefore, CMS finalized a policy whereby Factor 3 would consist of two-thirds Medicaid/SSI data and one-third Worksheet S-10 data (as reported on the FY 2014 cost report) for FY 2018.14  Although not yet official policy, CMS also stated that “if we were to propose to continue [inclusion of Worksheet S-10] . . . [s]tarting with 1 year of Worksheet S-10 data in FY 2018, an additional year of Worksheet S-10 data would be incorporated into the calculation of Factor 3 in FY 2019, and the use of low-income insured days would be phased out by FY 2020.”15  That is, for hospitals relying on Medicare to supplement its uncompensated care costs, Worksheet S-10 is going to become increasingly important.  And because one hospital’s gain is another hospital’s loss in the UCC pool world, hospitals should be sure to fully report Worksheet S-10 data.

CMS’s Attempts to Alleviate Disparity in Completing Worksheet S-10

It seems simple enough:  uncompensated care data is pulled from Worksheet S-10, Line 30 (which includes the cost of charity care from Line 23 and non-Medicare bad debt from Line 29) and a hospital’s UCC share is tabulated.16  However, confusion remains, particularly around how to appropriately capture charity care.  For one, CMS’s long-standing definition of charity care was not crystal clear: “Health services for which a hospital demonstrates that the patient is unable to pay.  Charity care results from a hospital’s policy to provide all or a portion of services free of charge to patients who meet certain financial criteria.”17  CMS acknowledged in rulemaking that “hospitals have the discretion to design their charity care policies as appropriate.”18  Unsurprisingly, commenters repeatedly expressed concern about inconsistently reported charity care.19  Because UCC payments are comparative, inconsistency creates an uneven playing field.

Over the last year and a half, CMS has attempted to address some of these concerns by issuing significant updates to the Provider Reimbursement Manual Part 2 (PRM), the manual that instructs hospitals how to complete their year-end cost reports properly.  In Transmittal 10, CMS expressly disallowed double-dipping:  hospitals cannot claim as charity care any amounts for which it has received Medicare reimbursement as a bad debt.20  Further, for cost reporting periods beginning after October 1, 2016, charity care costs are to be included on Worksheet S-10 during the fiscal year in which they were written off, and not necessarily the year in which the services were provided.21 This latter change affords hospitals greater flexibility, as charity care determinations can take time.

Through Transmittal 11, CMS further  broadened the reach of “charity care” by stating that  “charity care charge data, discounts given to uninsured patients that meet the hospital’s financial assistance policy [(FAP)]22. . . , non-Medicare bad debt, and non-reimbursed Medicare bad debt may be used in the calculation of the uncompensated care payment.” 23  Both full and partial discounts may be reported.24  The reference to “financial assistance policy” was requested by stakeholders during the FY 2018 rulemaking “for consistency with the terminology used in the regulations implementing section 501(r) of the Internal Revenue Code.”25  A hospital’s FAP policy provides uninsured patients certain discounts, without regard to ability to pay.  As such, the inclusion of FAP in the definition of charity care expands the amounts a hospital can report.  However, courtesy discounts (e.g., prompt pay discounts, employee discounts, friends and family discounts) do not meet the Worksheet S-10 definition of charity care.26

Also now explicitly included on Line 20 are “charges for non-covered services provided to patients eligible for Medicaid or other indigent care programs, if such inclusion is specified in the hospital’s charity care policy or FAP and the patient meets the hospital’s policy criteria.”27  CMS also clarified that charges for non-covered Medicaid patients (exceeding the length-of-stay limit) can be reported as charity care charges on Line 20, again only if specified in the hospital’s charity care policy or FAP.28

On Worksheet S-10, hospitals may include charity care policy discounts given to both uninsured patients and those with insurance coverage, as long as the insurer is not related to the hospital.29  Said CMS:  “nothing prohibits a hospital from considering a patient’s insurance status as a criterion in its charity care policy.”30  However, any amounts associated with an insured patient after applying the charity care policy to a deductible, coinsurance, or charges for days exceeding a length of stay limit for Medicaid patients cannot be reported as charity care.31 

Hospitals must net out payments (Line 22) from costs (Line 21, which flows from Line 20) to calculate the total cost of charity care on Line 23.  For cost reporting periods prior to October 1, 2016, the instructions direct a hospital to enter payments “received or expected to be received” by patients approved for charity care on Line 22.32  For later periods, hospitals report charity care charges or uninsured discounts written off with no expectation of payment on Line 20 (making it unlikely that any patient payments would be reported on Line 22).33

CMS also modified the application of the cost-to-charge ratio (CCR) on Worksheet S-10.  Under CMS’s revised instructions, the CCR does not apply to non-reimbursed Medicare bad debt or to deductible/coinsurance amounts for insured patients approved for charity care.34  The CCR will, however, apply for uninsured patients approved for charity care or under the FAP and for non-Medicare bad debt.35

To account for these changing policies, CMS allowed hospitals to amend their FY 2014 and 2015 cost reports specifically for the purpose of more accurately capturing Worksheet S-10 data as the policy has evolved in rulemaking.36  Most recently, CMS allowed hospitals to file such amendments through January 2, 2018.37  Unless a hospital happened to predict CMS’s changes to and use of Worksheet S-10 in advance (without the benefit of CMS’s transmittal clarifications), these amendments were of no help for UCC Factor 3 that was already calculated for FY 2018 and which was set with the FY 2018 IPPS Final Rule in August 2017.  However, the amendments should assist hospitals in setting Factor 3 for FY 2019 (which will likely include data from the FY 2015 cost report).  The amendments will, of course, affect how Factor 3 is calculated in future years, as well.  Notably, CMS stated in rulemaking that “we expect cost reports beginning in FY 2014, FY 2015, and FY 2016 to be subject to further scrutiny after submission.”38  Desk audits of Worksheet S-10 are expected to begin with FY 2017 cost reports.39

Don’t Get Left Behind

Certain questions remain, such as how extensively a hospital must verify a patient’s eligibility for charity care.  However, with Worksheet S-10 apparently here to stay, there are steps a hospital should take now to ensure its fair share of UCC payments.  It is imperative that hospitals review and, where necessary, update their bad debt, charity care, and financial assistance policies so that they take full advantage of CMS’s clarifications from Transmittals 10 and 11 as to what is appropriately claimed “charity care.”  Hospitals should review their policies now so any necessary changes can be made in real time in order for hospitals to claim all “charity care” when cost reports for the current fiscal year are filed several months from now.

Specifically, hospitals should consider revising their policies as follows:

  • Making clear that the charity care policy applies to both uninsured and insured individuals, and therefore can include discounts related to coinsurance and deductibles;
  • Articulating a clear uninsured discount policy in the FAP (but not including any courtesy discounts on Worksheet S-10);
  • Including non-covered Medicaid services and Medicaid services exceeding length-of-stay requirements in the charity care policy and FAP; and
  • If a state requires that a hospital give a discount to uninsured patients, citing that provision in the charity care policy and FAP.40

Expanding charity care and FAP policies within the bounds of CMS’s guidance will allow hospitals to report increased charges on Worksheet S-10, some subject to the CCR and some not.  Increased charges will allow a hospital to receive a larger share of the UCC pool.

As for audits, hospitals must ensure that their policies are being followed and confirm that the associated costs are being properly included on Worksheet S-10 according to CMS’s revised instructions.  When audits begin for Worksheet S-10, it is essential that hospitals support everything reported on the worksheet during the desk review.  If a Medicare Administrative Contractor were to settle that cost report disallowing any amount of the hospital’s charity care claimed on Worksheet S-10, it will as a practical matter forever exclude that charity care from being used to calculate the hospital’s UCC Factor 3.  A hospital could in theory appeal the disallowance, but by the time that administrative appeal was resolved, it may be of limited utility.  The Medicare administrative appeals process can take years to play out and a hospital would likely be well beyond the fiscal year for which that Worksheet S-10 data was utilized in the UCC payment calculation by the time it does.


Because the UCC payment pool appears here to stay, hospitals must adapt to CMS’s adoption of and updates to Worksheet S-10.  The UCC payment system is a zero-sum game, so hospitals should carefully review and update their charitable policies and ensure that all of pertinent data is being appropriately captured on Worksheet S-10.

* * * 

1 See 78 Fed. Reg. 79 Fed. Reg. 50496, 50635-39 (Aug. 19, 2013), 79 Fed. Reg. 49854, 50015-16 (Aug. 22, 2014), 80 Fed. Reg. 49326, 49523-26 (Aug. 17, 2015), and 81 Fed. Reg. 56762, 56953-55 (Aug. 22, 2016).

2 See 82 Fed. Reg. 37990, 38200 (Aug. 14, 2017) (“The FY 2018 final uncompensated care amount is . . . $6,766,695.56.”)

3 42 U.S.C. § 1395ww(d)(5)(F) (defining the DSH calculation); see also (description of SSI cash benefits).

4 Patient Protection and Affordable Care Act § 3133, codified at 42 U.S.C. § 1395ww(r)(1)-(2).  Under this change from the DSH formula to the UCC calculation, payments are based on uncompensated care relative to other hospitals, not simply an individual hospital’s Medicare volume. 

5 42 U.S.C. § 1395ww(r)(2)(A)-(B).  These steps are known as “Factor 1” and “Factor 2.”

6 42 U.S.C. § 1395ww(r)(2)(C).

7 78 Fed. Reg. at 50634-40.

8 78 Fed. Reg. at 50635-36.  Outside of the Meaningful Use electronic health record (EHR) incentive program, Worksheet S-10 historically had no reimbursement impact and was not a focus for many hospitals.

9 Under the IPPS, Medicare pays predetermined, standardized amounts per discharge to hospitals, subject to certain payment adjustments, including UCC payments.  42 U.S.C. §§ 1395ww(d)(1)-(5), 1395ww(r).

10 See 79 Fed. Reg. at 50015-16, 80 Fed. Reg. at 49523-26, and 81 Fed. Reg. at 56953-55.

11 82 Fed. Reg. at 38219.

12 82 Fed. Reg. at 38202.

13 Id.

14 82 Fed. Reg. at 38209-10, 38212.

15 82 Fed. Reg. at 38209.

16 82 Fed. Reg. at 38215.

17 PRM, CMS Pub 15-2, § 4012.

18 82 Fed. Reg. at 38216.

19 Id.

20 See Transmittal 10, updating PRM § 4012 definitions of “uncompensated care” and “charity care,” issued November 18, 2016 and available at

21 Id. updating instructions for Line 20.

22 Charitable hospitals are required to adopt written FAPs that specify eligibility criteria, whether assistance includes free or discounted care, the basis for calculating charges, and the method for applying for financial assistance.  The FAP must be “widely publicize[d]” within the community served.  26 U.S.C. § 501(r)(4).  See also 26 C.F.R. § 1.501(r)-4.

23 Transmittal 11, amending PRM § 4012, issued September 29, 2017 and available at

24 Id.

25 82 Fed. Reg. at 38217.

26 Transmittal 10, amending PRM § 4012 instructions for line 20; see also Worksheet S-10 – Hospital Uncompensated and Indigent Care Data Following 2018 IPPS Final Rule Questions and Answers – Q1, available at

27 Transmittal 11, amending PRM § 4012 instructions for line 20 (emphasis added); see also Worksheet S-10 Q&A – Q7.

28 Id.  Federal law does not dictate what eligibility criteria a hospital must include in its FAP and need not limit it to patients with income or resources below an arbitrary level.  Therefore, although the terms “charity care policy” and FAP are often used interchangeably and a hospital may effectively have only one policy, CMS recognizes that a FAP need not necessarily include a determination of indigency, but its associated charges may nonetheless be included on Worksheet S-10.

29 Transmittal 10, amending PRM § 4012 instructions for Line 20. 

30 82 Fed. Reg. at 38206.

31 Worksheet S-10 Q&A – Q5.

32 Transmittal 10, updating instructions for Line 20.; see also Transmittal 11, amending the same.

33 Id. and Worksheet S-10 Q&A – Q4.

34 Transmittal 11, creating new Line 27.01 to report Medicare allowable bad debts, which are then subtracted from a hospital’s total bad debts (Line 26) and multiplied by the CCR to determine non-Medicare bad debt costs.  See also Worksheet S-10 Q&A – Q3.

35 Id.; see also MLN Matters Number SE17031, issued September 29, 2017 and available at

36 See, e.g., Transmittal 1681, Change Request 9648, allowing hospitals to amend their FY 2014 S-10 worksheets by October 1, 2016, issued July 15, 2016 and available at  Of course, at that time, CMS had not yet finalized a policy to use Worksheet S-10 data.  See also MLN Matters Number MM 10378, extending the FY 2014 and 2015 S-10 amendment deadline to January 2, 2018, issued December 1, 2017 and available at

37 See MLN Matters MM 10378.

38 82 Fed. Reg. at 38208.

39 Id.

40 Worksheet S-10 Q&A – Q6.

Mark Polston

King & Spalding, LLP, Washington, DC

Mark Polston is a partner in King & Spalding’s Washington DC office. His practice focuses on advising clients on Medicare payment and compliance issues. Mr. Polston is also the lead attorney in several major Medicare reimbursement cases representing hundreds of hospitals in federal court associated with CMS’s two-midnight rule for inpatient services; Medicare bad debt and graduate medical education appeals; and DSH payment issues. Prior to joining King & Spalding Mr. Polston served as the HHS Deputy Associate General Counsel for Litigation in the Office of the General Counsel, CMS Division, where he oversaw all Medicare litigation.  He may be reached at [email protected].


Elizabeth Swayne

King & Spalding, LLP, Washington, DC

Elizabeth Swayne is an associate in the Healthcare Practice Group of King & Spalding’s DC Office.  Ms. Swayne’s practice consists of providing strategic payment and compliance advice to healthcare providers participating in Medicare, Medicaid and commercial insurance plans, as well as representing providers in litigation matters.  She may be reached at [email protected].