DEPARTMENT OF HEALTH & HUMAN SERVICES 
Health Care Financing Administration  
 Center for Medicaid and State Operations 
7500 Security Boulevard 
Baltimore, MD 21244-1850 
December 29, 1999  
Dear State Medicaid Director:  
This letter is in follow up to the letter I recently sent you on the Health Care Financing Administration's (HCFA) intent to 
issue policy guidance on the identification of Medicaid patient days that Medicare fiscal intermediaries use in computing 
Medicare Disproportionate Share Hospital (DSH) payments.  
The policy guidance, Intermediaries Program Memorandum Transmittal No. A-99-62, clarifying the Medicare DSH 
adjustment calculation, is enclosed. Specifically, HCFA clarifies the definition of allowable Medicaid days in the 
Medicare DSH policy for cost reporting periods beginning on or after January 1, 2000 as well as the instructions for cost 
reporting periods before January 1, 2000. Please review this transmittal carefully to assure that information that you report 
to the hospitals or the fiscal intermediaries complies with these instructions. Please send this transmittal to any managed 
care organizations with which you contract so that they may also take any necessary actions.  
Thank you for your cooperation in this matter. If you have any questions regarding this letter, please contact Larry Reed 
on (410) 786-3325.  
Sincerely,  
/s/   
Timothy M. Westmoreland  \ 
Director  
Enclosure  
cc:  All HCFA Regional Administrators  All HCFA Associate Regional Administrators for Medicaid and State Operations  
Lee Partridge - Director, Health Policy Unit American Public Human Services Association  Joy Wilson - Director, Health 
Committee National Conference of State Legislatures  Matt Salo - Senior Health Policy Analyst National Governors' 
Association   Transmittal No. A-99-62 Date: DECEMBER 1999  
CHANGE REQUEST #1052 
SUBJECT: Clarification of Allowable Medicaid Days in the Medicare Disproportionate Share Hospital (DSH) Adjustment 
Calculation--ACTION 
A review of practices and policies regarding Medicare disproportionate share payment determinations led HCFA to conclude that it is 
necessary to clarify the definition of eligible Medicaid days in Medicare disproportionate share policy and communicate this 
information to fiscal intermediaries, hospitals, Medicaid State agencies, and Medicaid managed care organizations. This clarification 
applies to cost reporting periods beginning on or after January 1, 2000. The purpose of this memorandum is to address those details 
that may need clarification and also to communicate the hold harmless position for cost reporting periods beginning before January 1, 
2000. A similar memorandum will be sent to the Medicaid State agencies.  
CLARIFICATION FOR COST REPORTING PERIODS BEGINNING ON OR AFTER JANUARY 1, 2000 
Background 
Under section 1886(d)(5)(F) of the Social Security Act, the Medicare disproportionate share patient percentage is made up of two 
computations. The first computation includes patient days that were furnished to patients who, during a given month, were entitled to 
both Medicare Part A and Supplemental Security Income (SSI) (excluding State supplementation). This number is divided by the 
number of covered patient days utilized by patients under Medicare Part A for that same period. The second computation includes 
patient days associated with beneficiaries who were eligible for medical assistance (Medicaid) under a State plan approved under Title 
XIX but who were not entitled to Medicare Part A. (See 42 CFR 412.106(b)(4).) This number is divided by the total number of patient 
days for that same period.  
Included Days 
In calculating the number of Medicaid days, the hospital must determine whether the patient was eligible for Medicaid under a State 
plan approved under Title XIX on the day of service. If the patient was so eligible, the day counts in the Medicare disproportionate 
share adjustment calculation. The statutory formula for "Medicaid days" reflects several key concepts. First, the focus is on the 
patient's eligibility for Medicaid benefits as determined by the State, not the hospital's "eligibility" for some form of Medicaid 
payment. Second, the focus is on the patient's eligibility for medical assistance under an approved Title XIX State plan, not the 
patient's eligibility for general assistance under a State-only program. Third, the focus is on eligibility for medical assistance under an 
approved Title XIX State plan, not medical assistance under a State-only program or other program. Thus, for a day to be counted, the 
patient must be eligible on that day for medical assistance benefits under the Federal-State cooperative program known as Medicaid ( 
under an approved Title XIX State plan). In other words, for purposes of the Medicare disproportionate share adjustment calculation, 
the term "Medicaid days" refers to days on which the patient is eligible for medical assistance benefits under an approved Title XIX 
State plan. The term "Medicaid days" does not refer to all days that have some relation to the Medicaid program, through a matching 
payment or otherwise; if a patient is not eligible for medical assistance benefits under an approved Title XIX State plan, the patient 
day cannot become a "Medicaid day" simply by virtue of some other association with the Medicaid program.  
Medicaid days, for purposes of the Medicare disproportionate share adjustment calculation, include all days during which a patient is 
eligible, under a State plan approved under Title XIX, for Medicaid benefits, even if Medicaid did not make payment for any services. 
Thus, Medicaid days include, but are not limited to, days that are determined to be medically necessary but for which payment is 
denied by Medicaid because the provider did not bill timely, days that are beyond the number of days for which a State will pay, days 
that are utilized by a Medicaid beneficiary prior to an admission approval but for which a valid enrollment is determined within the 
prescribed period, and days for which payment is made by a third party. In addition, we recognize in the calculation days that are 
utilized by a Medicaid beneficiary who is eligible for Medicaid under a State plan approved under Title XIX through a managed care 
organization (MCO) or health maintenance organization (HMO). However, in accordance with 42 CFR 412.106(b)(4), a day does not 
count in the Medicare disproportionate share adjustment calculation if the patient was entitled to both Medicare Part A and Medicaid 
on that day. Therefore, once the eligibility of the patient for Medicaid under a State plan approved under Title XIX has been verified, 
you must determine whether any of the days are dual entitlement days and, to the extent that they are, subtract them from the other 
days in the calculation.  
Excluded Days 
Many States operate programs that include both State-only and Federal-State eligibility groups in an integrated program. For example, 
some States provide medical assistance to beneficiaries of State-funded income support programs. These beneficiaries, however, are 
not eligible for Medicaid under a State plan approved under Title XIX, and, therefore, days utilized by these beneficiaries do not count 
in the Medicare disproportionate share adjustment calculation. If a hospital is unable to distinguish between Medicaid beneficiaries 
and other medical assistance beneficiaries, then it must contact the State for assistance in doing so.  
In addition, if a given patient day affects the level of Medicaid DSH payments to the hospital but the patient is not eligible for 
Medicaid under a State plan approved under Title XIX on that day, the day is not included in the Medicare DSH calculation.  
It should be noted that the types of days discussed above are not necessarily the only types of excluded days. Please see the attached 
chart, which summarizes some, but not necessarily all, of the types of days to be excluded from (or included in) the Medicare DSH  adjustment calculation.  
To provide consistency in both components of the calculation, any days that are added to the Medicaid day count must also be added 
to the total day count, to the extent that they have not been previously so added.  
Regardless of the type of allowable Medicaid day, the hospital bears the burden of proof and must verify with the State that the patient 
was eligible under one of the allowable categories during each day of the patient's stay. The hospital is responsible for and must 
provide adequate documentation to substantiate the number of Medicaid days claimed. Days for patients that cannot be verified by 
State records to have fallen within a period wherein the patient was eligible for Medicaid as described in this memorandum cannot be 
counted.  
HOLD HARMLESS FOR COST REPORTING PERIODS BEGINNING BEFORE JANUARY 1, 2000 
In accordance with the hold harmless position communicated by HCFA on October 15, 1999, for cost reporting periods beginning 
before January 1, 2000, you are not to disallow, within the parameters discussed below, the portion of Medicare DSH adjustment 
payments previously made to hospitals attributable to the erroneous inclusion of general assistance or other State-only health program, 
charity care, Medicaid DSH, and/or ineligible waiver or demonstration population days in the Medicaid days factor used in the 
Medicare DSH formula. This is consistent with HCFA's determination that hospitals and intermediaries relied, for the most part, on 
Medicaid days data obtained from State Medicaid agencies to compute Medicare DSH payments and that some of those agencies 
commingled the types of otherwise ineligible days listed above with Medicaid Title XIX days in the data transmitted to hospitals 
and/or intermediaries. Although HCFA has decided to allow the hospitals to be held harmless for receiving additional payments 
resulting from the erroneous inclusion of these types of otherwise ineligible days, this decision is not intended to hold hospitals 
harmless for any other aspect of the calculation of Medicare DSH payments or any other Medicare payments.  
Hospitals That Received Payments Reflecting the Erroneous Inclusion of Days at Issue 
In practical terms this means that you are not to reopen any cost reports for cost reporting periods beginning before January 1, 2000 to 
disallow the portions of Medicare DSH payments attributable to the erroneous inclusion of general assistance or other State-only 
health program, charity care, Medicaid DSH, and/or ineligible waiver or demonstration population days if the hospital received 
payments for those days based on those cost reports. If, prior to the issuance of this Program Memorandum, you reopened a settled 
cost report to disallow the portion of Medicare DSH payment attributable to the inclusion of these types of days, reopen that cost 
report again and refund the amounts (including interest) collected. Do not, however, pay the hospitals interest on the amounts 
previously recouped as result of the disallowance. Furthermore, on or after October 15, 1999, you are not to accept reopening requests 
for previously settled cost reports or amendments to previously submitted cost reports pertaining to the inclusion of these types of days 
in the Medicare DSH formula.  
For cost reporting periods beginning before January 1, 2000, you are to continue to allow these types of days in the Medicare DSH 
calculation for all open cost reports only in accordance with the practice followed for the hospital at issue before October 15, 1999 
(i.e., for open cost reports, you are to allow only those types of otherwise ineligible days that the hospital received payment for in 
previous cost reporting periods settled before October 15, 1999). For example, if, for a given hospital, a portion of Medicare DSH 
payment was attributable to the erroneous inclusion of general assistance days for only the out-of-State or HMO population in cost 
reports settled before October 15, 1999, you are to include the ineligible waiver days for only that population when settling open cost 
reports for cost reporting periods beginning before January 1, 2000. However, the actual number of general assistance and other State-
only health program, charity care, Medicaid DSH, and/or ineligible waiver or demonstration days, as well as Medicaid Title XIX days, 
that you allow for the open cost reports must be supported by auditable documentation provided by the hospital.  
Hospitals That Did Not Receive Payments Reflecting the Erroneous Inclusion of Days at Issue 
If a hospital did not receive any payment based on the erroneous inclusion of general assistance or other State-only health program, 
charity care, Medicaid DSH, and/or waiver or demonstration population days for cost reports that were settled before October 15, 
1999, and the hospital never filed a jurisdictionally proper appeal to the Provider Reimbursement Review Board (PRRB) on this issue, 
you are not to pay the hospital based on the inclusion of these types of days for any open cost reports for cost reporting periods 
beginning before January 1, 2000. Furthermore, on or after October 15, 1999, you are not to accept reopening requests for previously 
settled cost reports or amendments to previously submitted cost reports pertaining to the inclusion of these types of days in the 
Medicare DSH formula.  
If, for cost reporting periods beginning before January 1, 2000, a hospital that did not receive payments reflecting the erroneous 
inclusion of otherwise ineligible days filed a jurisdictionally proper appeal to the PRRB on the issue of the exclusion of these types of 
days from the Medicare DSH formula before October 15, 1999, reopen the cost report at issue and revise the Medicare DSH payment 
to reflect the inclusion of these types of days as Medicaid days. If there are any questions or concerns regarding the qualifications for a 
"jurisdictionally proper appeal", please submit them in writing before rendering a decision in a specific case to Charles Booth, 
Director, Financial Services Group, Office of Financial Management, 7500 Security Boulevard, Location C3-14-16, Baltimore, 
Maryland 21244-1850. Where, for cost reporting periods beginning before January 1, 2000, a hospital filed a jurisdictionally proper 
appeal to the PRRB on the issue of the exclusion of these types of days from the Medicare DSH formula on or after October 15, 1999, 
reopen the settled cost report at issue and revise the Medicare DSH payment to reflect the inclusion of these types of days as Medicaid 
days, but only if the hospital appealed, before October 15, 1999, the denial of payment for the days in question in previous cost 
reporting periods. The actual number of these types of days that you use in this revision must be properly supported by adequate  documentation provided by the hospital. Do not reopen a cost report and revise the Medicare DSH payment to reflect the inclusion of 
these types of days as Medicaid days if, on or after October 15, 1999, a hospital added the issue of the exclusion of these types of days 
to a jurisdictionally proper appeal already pending before PRRB on other Medicare DSH issues or other unrelated issues.  
You are to continue paying the Medicare DSH adjustment reflecting the inclusion of general assistance or other State-only health 
program, charity care, Medicaid DSH, and/or waiver or demonstration population days for all open cost reports for cost reporting 
periods beginning before January 1, 2000, to any hospital that, before October 15, 1999, filed a jurisdictionally proper appeal to the 
PRRB specifically for this issue on previously settled cost reports.  
Finally, you are reminded that, if a hospital has filed a jurisdictionally proper appeal with respect to the HCFA 97-2 ruling and the 
hospital has otherwise received payment for the portion of Medicare DSH adjustment attributable to the inclusion of general assistance 
or other State-only health programs, charity care, Medicaid DSH, and/or ineligible waiver or demonstration population days based on 
its paid Medicaid days, include these types of unpaid days in the Medicare DSH formula when revising the cost reports affected by the 
HCFA 97-2 appeal.  
The effective date for this Program Memorandum (PM) is for cost reporting periods beginning on or after January 1, 2000. 
The implementation date for this PM is January 1, 2000.  
Funding is available through a Supplemental Budget Request for costs required for implementation.  
PM may be discarded after January 31, 2001.  
SPECIAL INSTRUCTIONS TO THE INTERMEDIARIES FOR PUBLISHING THE PM: The intermediaries are required to 
distribute the content of this PM to all the hospitals immediately upon receipt of the PM.  
  Attachment 
ELIGIBLE 
TYPE OF DAY  DESCRIPTION 
TITLE XIX DAY 
Days for patients covered under a State-only (or county-only) general assistance 
General Assistance 
program (whether or not any payment is available for health care services under  No.  
Patient Days  
the program). These patients are not Medicaid-eligible under the State plan.  
Other State-Only Health  Days for patients covered under a State-only health program. These patients are 
No.  
Program Patient Days   not Medicaid-eligible under the State plan.  
Days for patients not eligible for Medicaid or any other third-party payer, and 
Charity Care Patient 
claimed as uncompensated care by a hospital. These patients are not Medicaid- No.  
Days  
eligible under the State plan.  
Days for patients eligible under a State plan based on a 1902(r)(2) or 1931(b) 
Actual 1902(r)(2) and  election. These patients are Medicaid-eligible under the Title XIX State plan 
Yes.  
1931(b) Days   under the authority of these provisions, which is exercised by the State in the 
context of the approved State plan.  
Days for patients who are Title XIX-eligible and who meet the definition of An 
Medicaid Optional 
optional targeted low income children@ under section 1905(u)(2). The difference 
Targeted Low Income 
between these children and other Title XIX children is the enhanced FMAP rate  Yes.  
Children (CHIP-related) 
available to the State. These children are fully Medicaid-eligible under the State 
Days  
plan.  
Days for patients who are eligible for benefits under a non-Medicaid State 
Separate CHIP Days   program furnishing child health assistance to targeted low-income children. These  No.  
children are, by definition, not Medicaid-eligible under a State plan.  
Days for patients in the eligibility group under the State plan for individuals under 
1915(c) Eligible Patient  a Home and Community Based Services waiver. This group includes individuals 
Yes.  
(the A217" group) Days   who would be Medicaid-eligible if they were in a medical institution. Under this 
special eligibility group, they are Medicaid-eligible under the State plan.  
Days for patients not enrolled in the Medicaid program at the time of service, but 
Retroactive Eligible 
found retroactively eligible for Medicaid benefits for the days at issue. These  Yes.  
Days  
patients are Medicaid-eligible under the State plan.  
Days for patients who are eligible for Medicaid under a State plan when the 
Medicaid Managed Care  payment to the hospital is made by an MCO for the service. An MCO is the 
Yes.  
Organization Days   financing mechanism for Medicaid benefits, and payment for the service through 
the MCO does not affect eligibility.  
Days for patients who are not eligible for Medicaid benefits, but are considered in 
the calculation of Medicaid DSH payments by the State. These patients are not 
Medicaid-eligible.  
Medicaid DSH Days   Sometimes Medicaid State plans specify that Medicaid DSH payments are based    
upon a hospital=s amount of charity care or general assistance days.This, 
however, is not Apayment@ for those days, and does not mean that the patient is 
eligible for Medicaid benefits or can be counted as such in the Medicare formula.