Transmittal 12513 Affects Treatment of Medicare Part C Days in DSH Calculation

A recent transmittal issued by the Centers for Medicare & Medicaid Services (CMS) outlines the process to be followed regarding the treatment of Medicare Part C days in the calculation of a hospital’s Medicare Disproportionate Share Hospital (DSH) adjustment.

It’s essential for hospitals to review the change request (CR) carefully and understand what will now occur and their ongoing appeal rights related to this issue.

Who Is Affected by Transmittal 12513

The transmittal primarily affects Medicare Administrative Contractors (MAC) and their processing of Notices of Program Reimbursement (NPR) or Revised Notices of Program Reimbursement (RNPR) for hospitals related to the treatment of Medicare Part C days in the calculation of the hospital’s Disproportionate Share Patient Percentage.


Hospitals, specifically those that have cost reports on hold where no original NPR has been issued or pending appeals related to the treatment of Part C days, are directly affected. The transmittal requires MACs to issue NPRs or RNPRs for these hospitals based on the updated policy issued in June 2023.

Medicare Administrative Contractors

The transmittal provides instructions and guidance to MACs on implementing the changes related to the treatment of Medicare Part C days in the calculation of a hospital’s Medicare DSH adjustment. MACs are responsible for identifying, reporting, and processing cost reports, appeals, and remands according to the new procedures outlined in the transmittal.

Your immediate next steps: Review and understand policy changes with Transmittal 12513, then identify relevant cost reports and communicate with MACs. More steps below.

Background on Transmittal 12513

In the fiscal year (FY) 2004 Inpatient Prospective Payment System (IPPS) proposed rule, CMS initially proposed excluding patient days associated with Medicare Part C enrollees from the Medicare fraction of the Disproportionate Patient Percentage (DPP) calculation.

However, this proposal wasn’t implemented.

In 2012, a district court vacated the policy established in the FY 2005 IPPS final rule, leading to subsequent legal challenges and uncertainties in the treatment of Part C days.

In 2020, CMS issued a proposed rule, and subsequently, a ruling—CMS Ruling 1739-R—to halt the calculation of DSH payment adjustments until a new rule governing the treatment of Part C days was finalized. This pause, according to CMS, was necessary due to legal and procedural uncertainties stemming from the vacated FY 2005 rule.

The rule issued on June 9, 2023, established a policy addressing the treatment of patient days associated with individuals enrolled in Medicare Part C for DPP calculations for discharges occurring before October 1, 2013.

What Changes with the Transmittal 12513 Issuance

Here are the key changes outlined in the transmittal.

Processing Clarification

The transmittal clarifies the process implementing the treatment of patient days associated with individuals enrolled in Medicare Part C—Medicare Advantage—plans for the purpose of calculating a hospital’s DPP for discharges before October 1, 2013.

Inclusion of Part C Days in the Medicare Fraction

The transmittal implements the policy that patients enrolled in a Medicare Part C plan are considered entitled to benefits under Medicare Part A, and thus, their patient days are to be included in the Medicare fraction of the DPP calculation. This includes the inclusion of Part C patient days in the numerator of the Medicare fraction where the patient is also eligible for Supplemental Security Income (SSI).

Retroactive Rulemaking

The transmittal implements the retroactive rulemaking issued June 9, 2023, acknowledging the need to address the treatment of Part C days for fiscal years before 2014. This retroactive application is deemed necessary to comply with statutory requirements and is seen as crucial for calculating accurate DSH payments for earlier periods. This position is disputed by the provider community.

MACs’ Responsibilities

MACs are instructed to proceed with the settlement of cost reports that have been placed on hold since 2020, and to issue NPRs or RNPRs and handle pending appeals or remands related to the treatment of Part C days.

Reopening Final Settled Cost Reports

The transmittal specifies that the final rule, while retroactively adopting the policy for fiscal years before 2014, isn’t a basis for reopening final settled cost reports. It establishes the controlling policy for those periods, but doesn’t reopen previously settled reports.

Timing for Transmittal 12513 Implementation

The timeline for the implementation of the transmittal is as follows:

Effective Date

The effective date of the changes outlined in the transmittal is March 25, 2024.

Implementation Date

The implementation date is also set for March 25, 2024. MACs are instructed to begin their work once the transmittal is placed on their contract.

Timelines for Specific Actions

The transmittal provides specific timelines for various actions that MACs are required to take. These actions include processing cost reports that have been on hold, pending appeals, and remands for appeals on this Part C issue.

NPR Issuance and Reopening Deadlines

MACs are instructed to issue NPRs or RNPRs within specific timeframes. For example, the transmittal specifies that MACs shall issue an NPR within six months from the effective date of the transmittal for certain cost reports on hold and longer deadlines for other categories of issues.

Please review the transmittal for full details on the timelines and specific actions MACs need to take for various scenarios.

Next Steps for Hospitals

Below are nine key steps hospitals should take to prepare for impacts of the transmittal.

1. Review the Transmittal

Hospitals should thoroughly review the details provided in the Transmittal document. Pay close attention to the changes in the treatment of Medicare Part C days, the effective date, and the specific instructions outlined for MACs.

2. Understand the Policy Changes

Gain a clear understanding of the policy changes introduced in the CR, particularly how patient days associated with individuals enrolled in Medicare Part C plans will now be considered in the Medicare fraction of the DPP calculation.

3. Identify Relevant Cost Reports

Hospitals should identify any cost reports that are currently on hold or pending appeals related to the treatment of Part C days. This includes understanding the fiscal years and specific issues for which cost reports were affected.

4. Communicate with MACs

Establish communication with your relevant MAC for proper alignment with the new process. Hospitals may need to provide information related to cost reports on hold, pending appeals, or remanded cases. If a hospital is working with a third-party vendor on these issues, then the hospital should coordinate communications to the MAC with that vendor.

5. Provide a Timely Response to MAC Requests

If MACs request information or actions related to the implementation of the transmittal, hospitals should respond promptly and provide any necessary documentation to facilitate the process.

6. Prepare for NPRs or Revised NPRs

Hospitals should anticipate receiving NPRs or RNPRs from MACs, as these will reflect the changes in the DSH adjustment calculation based on the updated policy. Review these documents carefully. In addition, hospitals will need to work closely with their third-party vendor to establish new appeals on the Part C issue from these revised settlements issued pursuant to the transmittal.

7. Provide Internal Education and Training

Keep relevant staff within the hospital, such as finance and reimbursement teams, updated on the new process that implements the policy change finalized in June of 2023.

8. Maintain Documentation and Recordkeeping

Maintain thorough documentation of any communications, actions taken, and responses provided to MACs. Proper recordkeeping is essential for audit readiness and compliance purposes.

9. Stay Informed

Hospitals should stay informed about any further updates, clarifications, or additional guidance related to the implementation of the transmittal. Work closely with your third-party representative, if applicable, and regularly check for updates from CMS or MAC communications.

We’re Here to Help

To learn more about Transmittal 12513 and how it could affect your MAC or hospital, contact your Moss Adams professional.

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