Some acute care hospitals would see a $1.1 billion reduction in cuts to Medicaid disproportionate share hospital (DSH) funds for two years under a Centers for Medicare & Medicaid Services proposal.
Some 2,000 acute care hospitals that treat large numbers of the uninsured would see a $1.1 billion reduction in federal subsidies, called Medicaid disproportionate share funds, over the next two years under a proposed rule released Monday by the Centers for Medicare & Medicaid Services.
The reduction methodology to accommodate "data refinement and methodology improvement before larger reductions begin in FY 2017" is being proposed just for FY 2014 and 2015, rather than the full $18.1 billion specified through 2020. The federal funds go to states, which distribute them to hospitals under federal and state eligibility requirements.
Hospital trade groups said they appreciated that the full cuts through 2020 weren't set forth in the proposed rule, but said all DSH cuts should be postponed two years because the premise for the rule, which is spelled out in the Patient Protection and Affordable Care Act, is no longer valid.
The idea is that since starting in FY 2014, or Oct. 1, 2013, hospitals wouldn't need such large DSH subsidies because they would have far fewer uninsured patients to care for. That's because health insurance exchanges are expected to cover more of the uninsured, and because PPACA authorizes states to expand their Medicaid programs to adults under age 65 with incomes up to 133% of the federal poverty level.
But when the Supreme Court last year gave states the ability to reject that level of expansion, it meant that hospitals in some states would probably continue to treat high numbers of uninsured patients, and would continue to need DSH subsidies.
"The Affordable Care Act's disproportionate share hospital reductions are neither justified nor sustainable—especially in light of the Supreme Court's decision on Medicaid expansion," said Beth Feldpush, Senior Vice President for Policy and Advocacy for the National Association of Public Hospitals and Health Systems in a prepared statement.
"We must delay these cuts until we fully understand how the court's decision will affect the number of uninsured and levels of uncompensated care. We appreciate that CMS, with its rule today, appears to share this concern by proposing a reduction methodology for only 2014 and 2015," she said.
Rick Pollock, American Hospital Association Executive Vice President, said in a statement that the AHA thinks the cuts "should be delayed for two years in order to better ascertain whether coverage expansions have been implemented. Today's proposed rule on implementation of the Medicaid DSH reductions, which were congressionally-mandated, appears to have been accomplished in a responsible way based upon our preliminary analysis.
"CMS also recognized that since some states have yet to decide whether to expand Medicaid, this proposed rule will not discourage expansion, nor will it penalize hospitals in those states that have yet to make a decision. We also believe limiting the proposed reductions to two years opens the door for coverage expansions to be more fully realized."
A bill introduced earlier this month by Rep. John Lewis (D-GA), would delay the DSH cuts for two years, and Pollack says the AHA supports that bill.
By definition, a hospital eligible for disproportionate share funds has at least two obstetricians with staff privileges at the hospital who agree to provide obstetric services to Medicaid beneficiaries and must have a Medicaid inpatient utilization rate of at least 1%.
By another definition of PPACA, a hospital must document that more than 25% of its patients are low-income.
In the meantime, however, CMS is required by law to issue its proposed rule now in preparation for implementation Oct. 1.
The 2010 healthcare reform law established a schedule to reduce DSH payments starting this October and in every year though 2020. The schedule of reductions to states, which then would be passed on to DSH hospitals, is as follows, although the amounts for years 2016 to 2020 are now apparently in limbo:
- FY 2014: $500 million
- FY 2015: $600 million
- FY 2016: $600 million
- FY 2017: $1.8 billion
- FY 2018: $5 billion
- FY 2019: $5.6 billion
- FY 2020: $4 billion
In its proposed rule, the agency outlined five areas that the law says must be taken into account in considering how much to cut DSH funding to states.
- Low DSH states receive smaller reductions.
- States with the lowest percentages of uninsured individuals receive larger reductions.
- States that do not target their DSH payments to hospitals with high volumes of Medicaid beneficiaries receive larger reductions.
- States that do not target their DSH payments on hospitals with high levels of uncompensated care receive larger reductions.
- States that have increased coverage under section 1115 demonstrations as of July 31, 2009, and adjusted their DSH allotments, will have these adjustments taken into account.
In a letter to Rep. Lewis supporting his legislation to delay all the cuts for two years, Pollack wrote that the healthcare reform law in 2010 was expected to provide "an additional 32 million Americans with healthcare coverage by 2019, and therefore Congress deemed it appropriate to reduce payments to the DSH programs under the assumption that fewer uninsured individuals would be accessing hospital care."
But last year, the Supreme Court determined "that the federal government could not force states to add additional beneficiaries to their Medicaid programs," a decision that "has negatively impacted projected health insurance expansion, with the Congressional budget Office recently estimating 27 million Americans will be covered under the ACA— a decline of 5 million insured individuals. In addition, there is uncertainty surrounding the level of coverage that will be obtained through the exchanges."