Hospital combination yields additional $3 million in Medicare DSH and reimbursements

Client background 

Two hospitals that reside in the same metropolitan area are located 14 miles apart. Both providers service a population of more than 166,000 with one hospital having 237 beds and the other having 45 beds.  

The business challenge 

The smaller hospital was on the cusp of qualifying for annual Medicare disproportionate share hospital (DSH) payments; they had not qualified for the past few years. On the other hand, the larger hospital had an already high DSH payment percentage.  

The Baker Tilly approach 

Baker Tilly identified that it would be beneficial if the hospitals combined into one entity with the smaller hospital acting as a remote location. Because both providers reside in the same core-based statistical area (CBSA), there would not be any payment issues and the Medicare DSH calculation could be combined into one. This would exceed the 11.75% required threshold to qualify as a DSH hospital under the 340B Drug Pricing Program and extend additional reimbursement opportunities.  

The business impact 

Combining the two entities qualified both hospitals for Medicare DSH and uncompensated care payments, which increased annual Medicare reimbursements by more than $1 million. In addition, the increased Medicare DSH percentage qualified several physician office locations for the 340B Drug Pricing Program. These additions to 340B discounts resulted in more than $2 million in annual 340B drug discounts. Finally, combining the two hospitals decreased overhead costs and expanded services at both hospital locations.  

For more information on this topic, or to learn how Baker Tilly’s Value Architects™ can help with special hospital designations, contact us now.