Safety Net Executives Renew Call to Preserve DSH Payments

Leaders of 250 safety net hospitals protest that the statutory cuts to Medicaid disproportionate share hospital funding—more than $18 billion through 2019—are unjustifiable since about half the states have rejected Medicaid coverage expansion.

The nation's safety net hospitals this week launched another long-shot bid to halt "crippling" disproportionate share payments.

In a letter Monday to House and Senate leaders, 102 executives representing 250 safety net hospitals across the nation protested that the statutory cuts to Medicaid disproportionate share hospital funding—more than $18 billion through 2019—"simply cannot be justified," now that about half the states have rejected Medicaid coverage expansion.

The safety net executives, members of the America's Essential Hospitals organization, reminded Congress that when the Patient Protection and Affordable Care Act was written, lawmakers assumed that a full national expansion of Medicaid would reduce the need for DSH funding. The U.S. Supreme Court upset that balance by allowing states to opt out of expansion.

"Nationwide, hospitals provide more than $40 billion in uncompensated and under-compensated care each year. Medicaid DSH is a lifeline of support that helps to offset just some of that cost," the hospital executives said in the letter to the chairs and ranking members of the Senate Finance and House Energy and Commerce committees. Now, the executives said, there is "no connection between the cuts and the number of uninsured or amount of uncompensated care across the country."

In addition to providing access to care for vulnerable and poor people, the safety net executives said Medicaid DSH payments also allow "our hospitals to provide services that are vital to our communities, including top-level trauma care, burn care, and neonatal intensive care. If these crippling cuts are not stopped, our hospitals will be forced to curtail essential services, ultimately limiting access to care and cutting jobs."

Jim Nathan, CEO at Lee Memorial Health System in Fort Myers, FL, and one of the executives who signed the letter, says DSH payment cuts are just one funding reduction that will hurt the mission of safety net hospitals and other not-for-profit providers.

"It's the accumulation or the cumulative effect of all the cuts coming from every direction and DSH payments are just one of them," Nathan told HealthLeaders Media.

He estimates that Lee Memorial, which operates five hospitals with a total of 1,423 beds, will lose about $50 million a year in various cuts from sources that include DSH reductions and sequester-mandated cuts to Medicare.

"People say, 'What services are you going to cut?' The reality is it is not so much cutting services. It is slowing the train down on providing services," Nathan says. "That would mean longer delays in the emergency department. It means less staffing. It means facilities getting older. It means in a growth area like ours not having sufficient beds to keep up with the growth. It means not being able to do as much for outreach that we would like to do for prevention. It means not having the funds available to make the changes to value-based purchasing at the pace that we would like to make."

Florida's legislature has rejected the Medicaid expansion dollars and Nathan says there is nothing to indicate that state lawmakers will change their minds anytime soon.

"So much of those cuts that we are expecting to see happen were supposed to be repackaged in dollars that would be sent back to Florida for the insurance expansion. Some of our legislators have said to me, 'You are foolish to think the federal government would do that,' and I say, 'Wait a minute. The federal government is doing what they said they would do. It's the Florida Legislature that is not accepting the money to come back.'"

"Here we are the state with the second-highest percentage of uninsured in the nation and we are thumbing our nose at the federal government trying to help not only these poor people but also to help everybody because we shift that cost to the insured. It is not free to the shrinking population of commercially insured patients. We are destroying employer-sponsored health insurance with this massive hidden tax to care for the uninsured."

Nathan concedes that a plea to Congress or the federal government to save DSH payments will likely be denied, especially when the requests come from hospital executives in states that rejected the Medicaid expansion.

"It is a legitimate question of the feds to ask, 'Why should we do anything for Florida when you haven't done anything for yourself? We have a great program for you,'" he says. "We are getting almost no response from our own legislators. They don't want to talk about it either. But we really don't have much choice but to raise the issue."

"The other question is if Florida is not going to play in the Medicaid expansion, is there some other creative way that we can leverage those dollars back to the state—because they're really Florida dollars?," he says. "I believe we are in the best position right now that we may ever be in to negotiate a deal with the feds. They want us to be successful. They have already left the door open to do something outside of traditional Medicaid, where you might be able to use the money to buy insurance for these people. That is a good thing."

Nathan believes that 2014 will be a challenging but manageable year at Lee Memorial because the health system has spent the last three years trimming about $125 million in various costs. The impact of DSH cuts will be felt in the years after.

"In 2015 and 2016, it starts to become very a big wild card for us with the changes in insurance and the shift to value-based reimbursements and the big insurance companies needing to do something dramatically different because of the laws they are under," he says. "The unknowns of the exchanges, the unknowns of the expansion, shifting all of Florida to Medicaid managed care virtually overnight—even though we haven't proven yet that it works—will make 2015 and 2016 really major transition years. It is not going to happen like a light bulb on and off instantly, but it could be pretty rapid because three years is really no time when you put it in that context."