Hospitals Concerned About Proposed DSH Payment Cuts in Health Reform

Depending on which bill is examined, 18 million to 23 million people could still remain uninsured under the House and Senate reform bill.

Others could still face financial barriers in obtaining needed healthcare or paying premiums or medical bills—which explains the reasons why Congress will continue Medicare and Medicaid disproportionate share hospital (DSH) payments under healthcare reform legislation.

The catch? The payments will be reduced in most instances to hospitals under proposed reform legislation from both the House and Senate. The reasoning is that more individuals will be covered by insurance. But how much the payments are cut and when that would take place depends on the patient populations served by the hospitals—particularly the safety net hospitals—and which bill language is used.

It is an area that has had hospital groups worried. In a letter sent to Congress and in Capitol Hill testimony last spring, hospital groups—including the American Hospital Association, the Federation of American Hospitals, and the National Association of Children's Hospitals—noted that many urban and rural hospitals were still struggling, even with the DSH payments.

With DSH payments included, the total hospital shortfall has rose from $3.8 billion in 2000 to nearly $32 billion in 2007 (with $21.4 billion for Medicare and $10.4 billion for Medicaid). And, including DSH payments, hospitals received payments of only 91 cents for every dollar spent caring for Medicare patients and only 88 cents for every dollar spent caring for Medicaid patients in 2007 on average, the hospitals said.

The hospital groups are asking Congress to reject reductions in federal support for DSH programs until after coverage expansions are fully implemented, and Medicare and Medicaid payment shortfalls are addressed.

John Bluford, president and CEO of Truman Medical Centers in Kansas City, MO, said at a conference in Washington in the spring that DSH funding was a critical source of support for safety-net providers—which serve a disproportionate share of low-income and minority patients.

These patients were often sicker and more costly to treat. "There was a belief that has been disproved with the Massachusetts experience that coverage for everyone would mean no need for special compensation for safety net providers," he said.

Congress was listening. However, the sections of the House and Senate bills vary in relation to Medicare and Medicaid DSH payments:

• In the Medicare section of the Senate bill, DSH payments would be lowered initially by 75% in fiscal 2015; however, these payments would be subsequently increased based on the percentage of the population uninsured and the amount of uncompensated care provided.
• In the House bill, beginning in 2017, reducing Medicare DSH payments to hospitals would take into consideration the national rate of uninsurance, based on the Health and Human Secretary's recommendations.
• In the Senate bill for Medicaid, a state's DSH allotment (effective in 2011) would be reduced by 50%, or 25% for low DSH states once the state's uninsured rate decreases by at least 45%. DSH allotments would be further reduced—not to fall below 50% of the total allotment in 2012—if states' uninsured rates continue to decrease.
• In the House bill, Medicaid DSH allotments would be reduced by a total of $10 billion—$1.5 billion in 2017; $2.5 billion in 2018; and $6 billion in 2019. The largest percentage reductions in state DSH allotments would be made in states with the lowest uninsured rates and those that do not target DSH payments.

One exemption under the Senate bill is Hawaii: the bill would permanently restore Hawaii's Medicaid DSH allotment—because it did not have a permanent DSH allotment in previous years under the structure of its Medicaid program.