Safety Net Hospitals Concerned About Proposed Payment Cuts

A deal announced last week between the White House and three hospital groups to reduce payments to hospitals by $155 billion over the next 10 years had groups representing safety net hospitals and health systems asking: What could happen if "disproportionate share hospital" (DSH) payments were reduced by $50 billion over the next 10 years?

In a joint statement, presidents of the National Association of Children's Hospitals (NACH) and the National Association of Public Hospitals and Health Systems (NAPH)—who were not at the White House meeting—said they could "support most of the provisions" in the agreement to finance healthcare reform. However, reductions related to DSH "could severely damage safety net providers if not carefully crafted."

Under the agreement signed by representatives of the American Hospital Association, the Catholic Health Association of the United States, and the Federation of American Hospitals, DSH programs that help pay for care for uninsured and the underinsured would not be reduced until 2015. Then, "roughly 60% of the existing DSH payments would be preserved" to assist the nation's safety net organizations.

"It's an implementation issue that's of concern," said Jim Kaufman, NACH's vice president of public policy. Most children's hospitals generally don't have a large number of uninsured patients because of Medicaid and state children's health insurance program provisions. Roughly, half of inpatient days for children in their facilities are paid by Medicaid.

However, Medicaid is an "abysmal payer" at the state level: On average, without DSH payments, Medicaid covers about 70% of the hospital's cost; with DSH, that rate climbs to 77%, Kaufman said. And while the House and Senate are looking at provisions to address Medicaid underpayment under healthcare reform, some unexpected shortfalls could occur.

For instance, under the tri-committee draft healthcare reform bill in the House, higher Medicaid reimbursement rates for primary care physicians are being proposed: The new federal minimum standard, as outlined in the draft, would be 80% of the Medicare rate in 2010, 90% of the rate in 2011, and 100% in 2012.