Worksheet S-10 Audits: FFY 2018 Insights and Future Preparation Tips

Despite expectations, the federal fiscal year (FFY) 2018 S-10 audit process wasn’t complete with all data uploaded to the Hospital Cost Report Information System (HCRIS) by December 31, 2020. At that date, however, the data of 1,540 of approximately 2,400 audited hospitals changed from their as-filed cost reports.

This provides significant information to reassess initial observations of the audits. These S-10 audits are complex and place additional burdens on hospitals to meet the stringent audit requirements.

Below, explore the results of changes visible at the year-end and how they can provide insight for hospitals facing future audits.

Audit Overview

Approximately 2,100 more S-10 Medicare Administrative Contractors (MAC) audits were performed during the 2018 round of audits than in previous cycles.

The FFY 2018 audits included all identified Disproportionate Share Hospital (DSH) qualified hospitals, plus sole community hospitals. It’s anticipated that Centers for Medicare & Medicaid Services (CMS) will continue to instruct MACs to complete audits on this large group of hospitals in future years.

It appears that a large portion of the audits were complete by December 31, 2020, but not all. With that in mind, any analysis on the Q4 2020 Healthcare Cost Reporting Information System (HCRIS) file should note that not all audit results are present.

Review our initial November 2020 audit assessment for previously available information on:

  • The 2018 audit letter
  • The requested year-over-year documentation requirement
  • MACs’ in-depth review of hospitals’ charity and financial assistance policies
  • Additional observations and challenges

New Audit Changes

Steps Taken Before Samples Were Requested

Once the requested information was provided, MACs generally performed several steps before requesting samples, such as:

  • Reviewing the financial assistance policies
  • Looking for duplicate claims, both within categories of provided data and between the various categories
  • Tying out accounts within the provided template
Financial Assistance Policies

Of particular note, MACs spent significant time trying to understand transactions and transaction codes—and how they relate to charity and financial assistance policies.

As your hospital prepares for future audits, it’s worthwhile to step back and assess your policies to verify they’re clear, accurately represent the provided discounts, and actively followed.

Duplicate Claims

Hospitals encountered challenges with MACs as they worked through duplicate claims reviews.

Due to the fluid nature of the process across the revenue cycle, patient classifications change; write-offs are often reversed or revised based on new information. Care should be taken before concluding the presence of a patient duplication.

Tying Outpatient Claim Activity and Reconciling Accounts

Tying outpatient claim activity and reconciling accounts was perhaps the biggest challenge—one that will likely remain once new cost reporting requirements are active for periods beginning on or after October 1, 2020. Timing was one of the most prominent issues, among many, that contributed to the challenge. Though providers were afforded additional time compared to the initial requests in many cases, the amount of data to compile and additional steps to complete, like reconciliations, required even more.

Completing the reconciliation of the accounts within the MAC templates proved difficult due to the fluid nature of an account over time—and because activity can cross cost reporting periods.

Steps Taken After Samples Were Requested

The categories sampled or the sample size weren’t consistent across MACs. As a result, hospitals had different experiences depending on their MAC.

Documentation Requests

The documentation required for the charity review, however, was somewhat consistent across MACs. These included:

  • Uniform Billing Form 04 (UB-04). These verify total charges and the exclusion of professional fees.
  • Charity and financial assistance policies. These must identify the underlying support required, by policy, to grant the charity award. The hospital must then provide the underlying support once it’s identified. This includes items like charity applications, presumptive eligibility score sheets, low-income status determinations, and support.
  • Remittance advices or Explanation of Benefits (EOBs). These verify that the write-offs reported on line 20, column two were only the patient responsibility amounts.
  • Patient account histories. These verify the write-off amount.

Documentation proved to be challenging for some hospitals, so it’s strongly advised to investigate documentation for future audits as soon as possible.

For example, if your policy calls for 10 items of supporting documentation to reach a specific charity determination, anticipate that all 10 items will be requested. If your policy permits presumptive eligibility scoring, the score sheets are required.

Some significant proposed audit adjustments resulted from lack of supporting documentation issues.

Bad Debt Sample Reviews

Similar documentation was requested in support of the bad debt write-off claimed.

As part of the audit review, MACs identified cases in which:

  • The bad debt write-off was more than the deductible, coinsurance, or copayment amount for insured patients
  • The self-pay discount wasn’t applied before the bad debt amount was determined for accounts where insurance payment was recouped
  • The remittance advice or EOB couldn’t be produced to verify patient responsibility

Each of these items resulted in audit adjustments, and in some cases, material extrapolations.

Early Insights Based on the Data

To compile an idea of the audit result, we looked at FFY 2018 cost reports in HCRIS and compared the Q2 2020 HCRIS data to the Q4 2020 HCRIS data.

We identified line 30 changes for 1,539 hospitals out of the 2,389 eligible hospitals from the 2021 final Inpatient Prospective Payment System (IPPS) rule. Overall, line 30 dropped over $1 billion dollars, or 4.7%.

Following is a summary of the key components that contributed to that change.

Line 20: Uninsured and Insured Charity Care Charge Changes

On line 20, total charity care charges, 1,393 hospitals experienced a change.

The revised amount for uninsured charity was $207 million greater than initially reported, only a .37% change.


Documentation proved to be challenging for some hospitals, so it’s strongly advised to investigate documentation for future audits as soon as possible.

Insured charity experienced a more dramatic change. The revised amount was $1.04 billion less than initially reported, or a 27% drop.

This is significant because insured charity charges aren’t subject to the cost-to-charge ratio.  Accordingly, the impact on actual uncompensated care cost reimbursement is dollar for dollar.

Line 22: Patient Payments

For payments reported on line 22, 401 hospitals had updated numbers.

While the amounts were relatively modest compared to total charity dollars, the decrease was dramatic as both payments for uninsured and insured charity dropped over 90%.

Line 26: Total Bad Debt Expense

With respect to bad debts, 1,415 hospitals experienced a change totaling a negative $2.2 billion dollars, or 7.4%.

While bad debt amounts weren’t necessarily a focus item in the earlier audits, all MACs in this round worked on the bad debts claimed by hospitals.

Line 30: Changes in Total Calculated Uncompensated Care

Overall, 1,050 of the 1,539 hospitals that experienced a change in line 30 saw a decrease in their numbers; 489 saw an increase.

The largest line 30 decrease was $93 million; the largest increase was $47.4 million.

The actual reimbursement impact on these hospitals is significant and given that the distribution of the pool is a zero-sum game, these changes impact all participants.

Key Takeaways from the S-10 Data

Hospitals advocated that CMS audit the data once it signaled data would be used to distribute the uncompensated care pool, projected to be over $8 billion dollars for 2021.  

Continued Plans to Audit All Qualified Hospitals

Initially, CMS audited approximately 25% of qualified hospitals.

In this last round of audits, CMS audited the entire group and signaled that it plans to continue auditing all qualified hospitals each year.

Report Filing Instruction Changes

CMS also changed cost report filing instructions related to data reported on S-10.

Given the significant redistributive nature of the pool distribution, hospitals should invest the time and resources necessary to verify CMS uses complete and accurate data.

Steps Hospitals Can Take to Prepare for an Audit

Continually evaluate charity and financial assistance polices to verify they’re clear, complete, and cover actual self-pay discounts and charity discounts applied to patients.

To prepare for audits:

  • Compile data at the patient level, not the general ledger level
  • Verify that supporting documentation used to make charity determinations is received from the patient and maintained on file
  • Consider conducting mock audits internally or through an independent resource

Properly retain and be ready to retrieve necessary data when going through, or planning to go through, patient accounting system conversions.

We’re Here to Help

For a deeper discussion of Worksheet S-10 audits and new instructions, please watch our webcast.

To learn more about the potential implications of your S-10 audits, or for assistance filing amended worksheet S-10 data to stay compliant with cost report instructions, contact your Moss Adams professional.