Reimbursement News

Slow Down Cuts to Medicaid DSH Payments, MACPAC Tells Congress

Uncompensated care costs are still high because of the Medicaid shortfall, so Congress should implement Medicaid DSH payment cuts more gradually, MACPAC advised.

Medicaid disproportionate share hospital (DSH) payments

Source: Thinkstock

By Jacqueline LaPointe

- The Medicaid and CHIP Payment and Access Commission (MACPAC) recently released its March 2019 report to Congress, which advises policymakers to roll out cuts to Medicaid disproportionate share hospital (DSH) payments over a longer period of time.

The commission also recommends that Congress restructure the Medicaid DSH allotment methodology to align funding with the number of non-elderly, low-income individuals in a state and apply payment reductions to states with unspent DSH allotments first.

“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,” Penny Thompson, MACPAC’s Chair, stated in a press release. “If these reductions go into effect, we recommend that Congress take this opportunity to move toward a more equitable funding distribution.”

Medicaid DSH payment reductions of $4 billion are scheduled to take effect October 1, 2019 for fiscal year 2020.

HHS is implementing the cuts as part of the Affordable Care Act (ACA), which assumed the uptick in insured patients through Medicaid expansions and the health insurance exchange would decrease uncompensated care costs for hospitals. Fewer uncompensated care costs would lessen the need for Medicaid DSH payments, which help support hospitals that serve a large number of Medicaid and uninsured individuals.

READ MORE: The Difference Between Medicare and Medicaid Reimbursement

Initially, the ACA called for Medicaid DSH payment reductions to start in fiscal year 2014. However, Congress delayed the payment reductions several times.

Under current law, Congress expects HHS to start cutting Medicaid DSH payments in FY 2020 and continue reducing the payments by $8 billion a year in FYs 2021 to 2026. After that, DSH allotments will return to unreduced amounts.

However, MACPAC is saying that hospitals need more time to respond to the billions of dollars in payment cuts, and Congress should change the Medicaid DSH payment reductions to $2 billion in FY 2020, $4 billion in FY 2021, $6 billion in FY 2022, and $8 billion a year in FYs 2023 to 2029.

“[A]lthough increased coverage under the ACA has reduced hospital unpaid costs of care for uninsured individuals, there has been a net increase in hospital uncompensated costs for DSH hospitals because of an increase in Medicaid shortfall (the difference between a hospital’s Medicaid payments and its costs of providing services to Medicaid-enrolled patients),” the report stated.

The suggested schedule would still phase in DSH payment reductions without increasing federal spending, the commission also highlighted.

READ MORE: Judge Voids CMS Rule Altering Medicaid DSH Payment Calculations

Hospital groups have been urging Congress to further delay Medicaid DSH payment cuts.

Most recently, the American Hospital Association (AHA) renewed its call to eliminate DSH payment cuts or at least postpone the reductions until more substantial coverage gains are realized.

“[T]he projected increase in coverage has not been fully realized due to the decision by some states not to expand Medicaid, as well as lower-than-anticipated enrollment in coverage through the Health Insurance Marketplaces,” the hospital group wrote in January 2019. “In fact, for the first time in nearly a decade, the number of uninsured children increased in 2017. For children losing coverage between 2016 and 2017, three-quarters live in states that have not expanded Medicaid coverage to parents and other low-income adults. For these reasons, the AHA continues to advocate that the ACA Medicaid DSH allotment reductions should not be implemented.”

In response to the new report, America’s Essentials Hospitals praised MACPAC for suggesting the delay.

“We cannot overstate the threat this cut poses to healthcare access and to hospitals that care for low-income and other vulnerable patients. If this cut occurs, essential hospitals will be unable to sustain the same comprehensive level of service they now provide to their communities,” the trade group representing vulnerable hospitals stated on its website.

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The group also pointed to the larger-than-expected difference between the projected decline in uncompensated care under the ACA and the Medicaid shortfall as the reason why Medicaid DSH reductions should be delayed.

According to the most recent data from the AHA, the difference between actual care costs and Medicaid reimbursement reached $20 billion in 2016. In other words, hospitals received just $0.88 for every dollar spent on treating Medicaid beneficiaries.

“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,” America’s Essential Hospitals wrote.

The MACPAC report to Congress also contained recommendations for the annual hospital upper payment limit, including improved oversight of the demonstration’s data to ensure the information is accurate.