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Failure to qualify for Medicaid program costs Memorial $21 million.

Coast hospital, Medicaid division in reimbursement lawsuit

GULFPORT — Memorial Hospital, a public hospital, and the Mississippi Division of Medicaid are in a dispute over Medicaid reimbursements that has led to two lawsuits over $46 million dollars worth of Medicaid funding.

According to Memorial Hospital, the hospital should have qualified to participate in Medicaid Disproportionate Share Hospital (DSH) program in 1999. Failure to qualify cost the hospital $21 million. The DSH program provides supplemental payment to hospitals that provide a high percentage of care to Medicaid and uninsured, low-income patients.

Memorial reportedly supplies care to more poor patients than any other hospital in the state except for the University Medical Center in Jackson. But the Division of Medicaid says the hospital was not eligible for those supplemental funds in fiscal 1999 because greater prosperity in the coastal area it serves meant that Memorial Hospital’s percentage of charity care dropped, making the hospital ineligible for the program.

Harold Pizzetta, special assistant attorney general representing the Division of Medicaid, said each year hospitals have to apply to participate in the DSH program. Hospitals that treat the highest percentage of Medicaid and low-income patients receive the funds.

“The economy of the Coast has shifted, and compared to the rest of the hospitals in the state, Memorial Hospital wasn’t in a high enough percentage to qualify in 1999,” Pizzetta said. “They serve a lot of indigent individuals, but as a percentage it is only 2% or 3%. Some hospitals in the Delta provide at least 10% of their care to charity care patients. Each year approximately 100 Mississippi hospitals apply for DSH program funds while only about 40 qualify.”

Memorial says it was surprised when it was notified that it was not eligible to participate in the DSH program for fiscal 1999.

“We were surprised to get this notice because we have always served a very high percentage of Medicaid and charity patients,” said Diane Gallagher, director of community and corporate relations for Memorial Hospital. “Memorial was the only hospital out of the 27 hospitals referenced in the lawsuit filed by the Division of Medicaid to be removed from the program. We protested the Division of Medicaid’s decision, and an independent hearing officer agreed with our position that the Division of Medicaid did not follow its own rules in removing Memorial from the Medicaid DSH program and that Memorial was being treated differently than other hospitals in the program.”

Memorial sued to recover the $21 million in funds it believed was due from 1999, and filed a lawsuit in federal court to insure that Memorial would qualify as a DSH hospital in 2000.

Pizzetta says Memorial Hospital did qualify as DSH hospital in fiscal 2000, but that was because the hospital had since purchased a psychiatric care hospital that increased the percentage of Medicaid and charity care being provided by the hospital.

There are two different methods hospitals can use to qualify for the DSH program. Pizzetta said that after Memorial was dropped from the DSH program for 1999, they used a different method than used in the past. He said what caught Medicaid’s eye about this was that while in previous years Memorial had reported charity care at $5 to $10 million, when the hospital no longer qualified under the first method and used the second method, charity care was reported at $27.1 million for fiscal 1999.

“The state said, ‘That just doesn’t look right,’” Pizzetta said. “Memorial was less than forthcoming in their explanation. Memorial said they had previously misreported the amounts because they were confused as to whether to report charges or cost. It turned out that they were not confused about charges versus cost. Instead, unlike every previous year, they had included bad debt in their charity care number.”

Pizzetta said charity care is care provided to individuals and the hospital knows when the care is provided that these individuals are not able to pay for the care. The patients are never charged for services. Bad debt comes from patients whom the hospital expected to pay, but who have not, and doesn’t have anything to with the patient’s income status.

“Federal and state law and accounting principals clearly say charity care and bad debt are two separate things,” Pizzetta said. “Memorial had overstated their numbers and therefore didn’t quality. They failed to meet the required percentage of Medicaid and low-income care. They were not disqualified because of failure to disclose proper numbers, but because they do not serve sufficient numbers of indigent individuals to qualify for this bonus.”

Pizzetta said the majority of other hospitals in the state recognize that bad debt is not equal to charity care. And he said Memorial is also the only hospital out of the 27 DSH hospitals for 2000 that refused to participate in a required Intergovernmental Transfer Program (ITP). Under this program DSH hospitals must transfer back to the state a portion of their funds so the state can use it as a match for federal Medicaid funding.

“This complicated program is the way that the state can pay out $2.1 billion in the Medicaid program each year,” Pizzetta said. “State law requires them to transfer the money to the state. Twenty-seven hospitals participated in DSH program in 2000, 26 transferred money back, and one didn’t. Memorial retained $21 million for their own use. And Memorial recently sought approval to spend $20 million on an office building, atrium, parking deck and food court.”

Memorial Hospital received about $50 million in DSH payments in 2000. Pizzetta said Memorial said they refused to transfer the money because they were upset DSH payments were withheld by the state. The state filed a lawsuit over Memorial’s failure to transfer the funds.

Gallagher said the Memorial will defend its right to Medicaid funding in order to protect the interests of the community.

“We are absolutely committed to the needs of our community, and we will take all appropriate actions to insure that these needs are met through adequate and proper funding,” Gallagher said.

Contact MBJ staff writer Becky Gillette at mullein@datasync.com or (228) 872-3457.


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