Hospitals Seek Another Delay for $4B Medicaid DSH Payment Cut

February 22, 2019 - America’s Essential Hospitals, American Hospital Association (AHA), Association of American Medical Colleges (AAMC), and five other national hospital groups are calling on policymakers to implement another delay for scheduled cuts to Medicaid Disproportionate Share Hospital (DSH) allotments.

The Affordable Care Act (ACA) requires policymakers to reduce Medicaid DSH payments. At the time of passage, Congress assumed that coverage expansions would drastically decrease the number of uninsured patients in the country, resulting in less hospital uncompensated care.

Therefore, the ACA called for significant reductions to Medicaid payments to hospitals that serve a disproportionate share of low-income and vulnerable patients starting in 2014.

However, the start of Medicaid DSH payment cuts has been delayed several times by policymakers. In 2013, Congress postponed the beginning of payment reductions to 2018, and budget bills in later years continued to delay the cuts.

CMS is slated to start slashing Medicaid DSH allotments to hospitals by $4 billion in the 2020 fiscal year, meaning hospitals will see reductions on October 1, 2019. The federal agency plans to continue reducing the payments each year until 2025 when total Medicaid DSH payment reductions reach $43 billion, according to a July 2017 rule.

But hospital groups are urging Congress to consider another delay in light of unrealized coverage expansion goals.

“The Affordable Care Act (ACA) reduced payments to the Medicaid DSH program under the assumption that uncompensated care costs would decrease as health care coverage increased,” the groups wrote to Congressional leaders on Feb. 9, 2019.

“Unfortunately, the coverage rates envisioned under the ACA have not been fully realized, and tens of millions of Americans remain uninsured. In addition, Medicaid underpayment continues to pose ongoing financial challenges for hospitals treating our nation’s most vulnerable citizens.”

The ACA led to significant coverage gains. Millions of individuals gained health insurance coverage under the ACA, and the uninsured rate decreased to a historic low in 2016.

But the Kaiser Family Foundation recently reported that ACA coverage gains did not last. Changes to the implementation of the ACA resulted in the number of uninsured individuals to rise for the first time since the implementation of the law. The number of uninsured reached 27.4 million people.

Additionally, almost one-half of the uninsured (45 percent) were outside the reach of the ACA because they either lived in a state that did not expand Medicaid, they were subject to immigrant eligibility restrictions, or their income made them ineligible for financial assistance.

While hospitals still treat a significant number of uninsured patients, Medicaid reimbursement shortfalls also continue to be a challenge.

According to the most recent data from the AHA, Medicaid reimbursement fell short of actual hospital costs by $22.9 billion in 2017.

“While most hospitals have remained financially viable, one third have negative operating margins, threatening access to health care in the communities they serve,” stated the AHA's Vice President of Policy Research, Analytics, and Strategy Aaron Wesolowski. “These underpayments continue as hospitals and health systems continue to invest in alternative payment and delivery models and to develop approaches that address the social, economic, and environmental factors that impact health outcomes and costs.”

Medicaid underpayments and rising uninsured rates have created a significant challenge for hospitals that treat greater proportions of low-income and vulnerable patients, the eight industry groups emphasized to Congress.

“Congress recognized the critical nature of fully funding the Medicaid DSH program by delaying the start of the cuts for the past six years,” the groups concluded. “We urge you to once again delay the start of the Medicaid DSH cuts given the vital need for this program.”