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What hospital leaders need to know about volume decrease adjustments

Oct 23, 2022

Given the significant impact of the COVID-19 pandemic on hospital admissions, yours may now qualify for volume decrease adjustments (VDAs). Medicare allows for additional cost-based reimbursement in the form of a lump-sum payment adjustment. 

What’s a VDA?

VDAs are additional lump-sum payments that can be made to qualified hospitals that experience a greater than 5% decrease in their total discharges for inpatients in the current year when compared to the preceding cost report period for circumstances that are beyond the control of the hospital.

To be considered a qualified hospital, you must have a status of either a Sole Community Hospital or Medicare Dependent Hospital as designated by the Centers for Medicare & Medicaid Services.

What are the restrictions of a volume decrease adjustment?

As noted above, a hospital must be designated as a Sole Community Hospital or a Medicare Dependent Hospital, and a greater than 5% drop in inpatient discharges when compared to the prior year. The provider must also demonstrate why the decrease in discharges is beyond their control and provide supporting information on preventative measures put in place to respond to the decrease.

Additionally, the hospital’s overall payments from Medicare must be less than the cost of services as reported on the Medicare cost report.

What amount could this be worth, and when does a hospital receive the lump sum?

The total amount a hospital can receive is dependent on how much a hospital has been paid from Medicare relative to the total costs and what the percentage of fixed and semi-fixed to total costs are. Providers are required to submit support for this calculation.

However, the Medicare administrative contractor will determine the payment to be made to the hospital based on the difference between the Medicare fixed costs to the fixed portion of total MS-DRG revenue based on MS-DRG-adjusted prospective payment rates for inpatient operating costs. Hospitals may be eligible for amounts ranging from zero to more than $5 million depending upon the factors above.

When will a hospital receive the payment?

A hospital will issue the VDA determination within 180 days of receipt of the information and payment will follow, assuming the final settlement of the applicable cost reporting period is complete. A provider can request an interim VDA payment if they have a history of receiving VDA payments.

How Wipfli can help

Wipfli’s healthcare team has specialized knowledge in helping hospitals determine eligibility for this Medicare reimbursement. Contact Wipfli for a review of your potential eligibility. Our team can help you start the data gathering process and preparation for all required documents and calculations needed to request a VDA.

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Blake Hort, CPA
Healthcare Manager
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