A deal announced last week between the White House and three hospital groups to reduce payments to hospitals by $155 billion over the next 10 years had groups representing safety net hospitals and health systems asking: What could happen if "disproportionate share hospital" (DSH) payments were reduced by $50 billion over the next 10 years?
In a joint statement, presidents of the National Association of Children's Hospitals (NACH) and the National Association of Public Hospitals and Health Systems (NAPH)—who were not at the White House meeting—said they could "support most of the provisions" in the agreement to finance healthcare reform. However, reductions related to DSH "could severely damage safety net providers if not carefully crafted."
Under the agreement signed by representatives of the American Hospital Association, the Catholic Health Association of the United States, and the Federation of American Hospitals, DSH programs that help pay for care for uninsured and the underinsured would not be reduced until 2015. Then, "roughly 60% of the existing DSH payments would be preserved" to assist the nation's safety net organizations.
"It's an implementation issue that's of concern," said Jim Kaufman, NACH's vice president of public policy. Most children's hospitals generally don't have a large number of uninsured patients because of Medicaid and state children's health insurance program provisions. Roughly, half of inpatient days for children in their facilities are paid by Medicaid.
However, Medicaid is an "abysmal payer" at the state level: On average, without DSH payments, Medicaid covers about 70% of the hospital's cost; with DSH, that rate climbs to 77%, Kaufman said. And while the House and Senate are looking at provisions to address Medicaid underpayment under healthcare reform, some unexpected shortfalls could occur.
For instance, under the tri-committee draft healthcare reform bill in the House, higher Medicaid reimbursement rates for primary care physicians are being proposed: The new federal minimum standard, as outlined in the draft, would be 80% of the Medicare rate in 2010, 90% of the rate in 2011, and 100% in 2012.
However, the House draft does not address additional reimbursements for specialty physician care. "If you take the DSH cuts away, you won't have adequate payments on Medicaid [patients] for hospitals: It's a huge problem for children's hospitals," Kaufman said. "And that's why we're really concerned about taking the DSH cut."
"We understand the goal: It makes perfect sense if kids are insured. That's great. But, however, the Medicaid piece has to be adequately reimbursing all its providers—not just primary care docs but everybody," Kaufman said.
Both NACH and NAPH said they support the DSH approach taken in the House tri committee draft bill that does not mandate specific DSH cuts to pay for healthcare reform. This provision suggests a study by the secretary of Health and Human Services to evaluate ongoing need for DSH payments after reform has been implemented.
NAPH's membership includes 107 large urban public teaching hospitals—about 2% of hospitals in the country—which provide 20% of the uncompensated care, said Larry Gage, NAPH's president. Add NAPH's member hospitals to the children's hospitals "and we're probably accounting for 30% to 40% of the Medicaid DSH payments," he said.
Gage said policymakers should look into the difficulties that various safety net hospitals and health plans in Massachusetts recently encountered when the state began phasing out special subsidies for hospitals as more people got coverage, Gage said.
"We're going to continue working on [the health reform] issue. We do expect if and when health reform is enacted that this issue will be addressed with the kind of sensitivity we [think it needs]," Gage said.