The report urges lawmakers to adjust the planned rollout of DSH payment reductions and require HHS to devise a new methodology for calculating those payments.
If lawmakers move forward with planned cuts to disproportionate share hospital (DSH) payments, they should consider phasing them in gradually and applying them first to states with unspent DSH funding, the Medicaid and CHIP Payment and Access Commission (MACPAC) said in its latest report to Congress.
The 150-page report, released Friday, also recommended that Congress have Health and Human Services come up with a new methodology for calculating DSH allotments, so each state would receive an amount that better reflects its number of non-elderly low-income people.
"For several years, MACPAC's analyses have shown that the DSH allotment formula bears little resemblance to a state's need for DSH funding, since it's based on historical patterns of spending going back to the 1990s," said MACPAC Chair Penny Thompson, MPA, in a statement. "If these reductions go into effect, we recommend that Congress take this opportunity to move toward a more equitable funding distribution."
The DSH payment cuts are planned to take effect October 1 as required by the Affordable Care Act, which made the cuts on the assumption that a growing insured population would result in declining uncompensated care for hospitals, as Thompson wrote in the report's opening letter to congressional leaders. The cuts were initially planned for fiscal year 2014, but they have been postponed several times.
"Although uninsurance has declined since the ACA went into effect, hospitals, particularly those serving low-income communities, continue to experience high levels of uncompensated care," Thompson wrote. "Although we are concerned that the magnitude of DSH cuts assumed under current law could affect the financial viability of some safety-net hospitals, over the past year, the Commission has focused on budget-neutral ways to restructure funding under current law."
Furthermore, new data analysis in the report shows that the Medicaid shortfall being shouldered by hospitals is growing, even as charity care and bad debt are on the decline, the MACPAC statement notes.
The three key DSH-related recommendations in the report's first chapter are as follows:
- Phase the cuts in gradually. If lawmakers choose to proceed with DSH cuts, they should plan $2 billion in cuts for fiscal year 2020, $4 billion for fiscal year 2021, $6 billion in fiscal year 2022, and $8 billion in fiscal years 2023-2029, the MACPAC report states. (Under current law, the DSH cuts are $4 billion in fiscal year 2020 and $8 billion in fiscal years 2021-2025.)
- Target unspent funds first. Lawmakers should require HHS to make the cuts apply first to states with DSH allotments that are projected to be unspent, the report states.
- Devise a new methodology. Congress should also require HHS to come up with a new methodology to distribute the DSH cuts in a way that gradually comes closer to reflecting each state's current need, "after adjusting for differences in hospital costs in different geographic areas," the report states.
While expressing appreciation for MACPAC's work, America's Essential Hospitals said in a statement that the priority should be stopping the planned cuts altogether.
"We cannot overstate the threat this cut poses to health care access and to hospitals that care for low-income and other vulnerable patients," the association of safety-net hospitals said. "If this cut occurs, essential hospitals will be unable to sustain the same comprehensive level of service they now provide to their communities."
The statement highlighted MACPAC's analysis that shows the Medicaid shortfall is growing faster than uncompensated care is shrinking. That "undermines the very premise of the cuts," AEH said.
"To ensure stability for these hospitals and the health and economic vitality of their communities, Congress must act now to stop the October DSH payment reduction," AEH said.
Steven Porter is an associate content manager and Strategy editor for HealthLeaders, a Simplify Compliance brand.
KEY TAKEAWAYS
As charity care and bad debt have been declining, the Medicaid shortfall shouldered by hospitals has been climbing.
The report calls the blow of planned DSH cuts to be softened with a gradual rollout that targets unspent state funds first.
An association of safety-net hospitals said the real solution would be to halt the planned cuts altogether.