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Cuts to Medicare Payments for Uninsured Begin

 |  By Chelsea Rice  
   October 01, 2013

Federally mandated cuts to Medicare and Medicaid hospital payments for uncompensated care go into effect on schedule, but hospital associations and lawmakers are actively proposing their delay.

The federal government may have shut down overnight, but provisions and funding cuts mandated by the Patient Protection and Affordable Care Act to be effective October 1 are rolling out as planned.

Much attention has been directed at the opening of the health insurance marketplaces, but Oct. 1 is also the day that the Centers for Medicare and Medicaid Services begins cutting Medicaid and Medicare disproportionate share hospital payments.

The loss of these monies, which compensate hospitals for the cost of treating the poor and uninsured, is expected to take a significant financial toll on many hospitals. But a bill introduced September 27 by Sen. Roger Wicker (R-MS) would delay the PPACA cuts to both the Medicare and Medicaid DSH payments.

Supported by the American Hospital Association, the bill is a companion to the DSH Reduction Relief Act (H.R. 1920) proposed by Rep. John Lewis (D-GA) in May 2013, which suggested DSH payment cuts be delayed for three years.

"Delaying the DSH cuts will help ensure that hospitals that serve high volumes of uninsured patients can continue to provide needed services to their communities," said Rick Pollack, executive vice president of the American Hospital Association in a prepared statement. "Maintaining DSH payments is vital to hospitals that care for the uninsured. We look forward to working with Congress to delay the reductions and provide vital support for hospitals that serve the most vulnerable." 

In 2012, the Medicaid DSH payments for all states and the District of Columbia were estimated to be $11.34 billion. CMS will reduce Medicaid DSH payments by $500 million in FY 2014 and $600 million in FY 2015, increasing annually. The program will face cuts of $5 billion in 2018, $5.6 billion in 2019, and $4 billion in 2020.

America's Essential Hospitals, formerly the 200-member National Association of Public Hospitals and Health Systems (NAPH), has been advocating in Congress for an improved DSH payment system that reflects the reality of the front-lines of care today. The hold-up, reflecting much of politics today, has been largely political, says Shawn Gremminger, assistant VP of legislative affairs at America's Essential Hospitals.

"Politics gets in the way. We often hear back 'I agree with you, I see there's a problem.' But in Republicans' cases they often say my boss opposes the PPACA, and we want a wholesale change. The Democrats' response is typically 'I'd like to help, but with Republican attacks I can't afford to do anything that changes the PPACA, and we need to defend the law in its entirety," said Gremminger.

"Any legislation at all around healthcare is just toxic. There's very little that both sides agree on."

America's Essential Hospitals is advocating for Congress to delay DSH payment cuts for three years, as well as realign the reimbursement formula to be more "evidence-based" or more accurately reflect the reality of uncompensated care at each state.

In 2010, the average hospital margin of America's Essential Hospitals members was 7%. For the nation's largest urban hospitals, the proposed DSH payment cuts would put their 2% profit margin closer to -7%, AEH calculates.

Medicaid DSH payments to hospitals in FY 2014 and 2015 will be allocated based on data that predates state decisions on Medicaid expansion, according to the May 2013 CMS rule on DSH allotment reductions. According to CMS data, 10.8 million Americans reside in states where Medicaid is currently not planned to be expanded by 2014. By 2014, 8.7 million new beneficiaries are expected to enroll in Medicaid.

The reductions will more heavily impact states that don't direct DSH payments to hospitals with high volumes of Medicaid patients and uncompensated care. Reductions will also more greatly impact states with lowest percentages of uninsured.

New York, a state that is more heavily dependent on DSH payments with its high numbers of uninsured, is expected be most dramatically affected by the cuts. But advocates are most worried about hospitals in states without Medicaid expansion.

For the 2014 fiscal year, which begins Oct. 1, CMS will begin to reimburse hospitals under its new formula for Medicare DSH payments, as outlined in the 2014 Hospital Inpatient PPS final rule released in April. Hospitals will begin to receive 25% less from Medicare for treating uninsured patients than they received previously.

"The 2014 cuts to DSH aren't necessarily going to be closing hospital doors, but the margins are so narrow that our hospital would have to look around to see areas where they are losing money and stop doing those things. There will probably be cuts to outpatient clinics, a reduction in community efforts, or ancillary services. But 2018 and 2019, when 5 to 6 billion will be cut to DSH payments, many of our hospitals simply aren't viable at this point," Gremminger said.

Chelsea Rice is an associate editor for HealthLeaders Media.
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