Affordable Care Act policy changes could severely impact hospital financial viability

Policy changes tied to Medicaid could have a drastic effect on whether many hospitals have the financial viability to stay in business, the Kaiser Family Foundation said in a new brief published Thursday.

States have a great deal of discretion to set Medicaid payment rates for hospitals and other providers; like other public payers, Medicaid payments have historically been below costs, on average, resulting in payment shortfalls. But hospital payment rates are often boosted by Disproportionate Share Hospital Payments and other supplemental payments. After accounting for these, many hospitals receive Medicaid payments that may be in excess of cost.

Changes, however, are afoot. The Affordable Care Act is giving hospital payer mix a makeover, especially in states adopting Medicaid expansion, where studies have shown a decline in self-pay discharges, and a corresponding increase in Medicaid discharges. The ACA also calls for reductions in DSH payments, and other federal policy changes are focused on limiting the use of supplemental payments.

[Also: Commonwealth Fund: Safety-net hospitals face disproportionate impact on reimbursements]

The KFF analysis suggests these changes could have important implications for Medicaid payments to hospitals, at the same time that Medicaid is becoming an ever-growing share of hospital payer mix -- especially among safety net hospitals that serve a disproportionately high number of Medicaid and uninsured patients.

Hospital industry stakeholders interviewed by KFF thought that, even after accounting for increases in Medicaid shortfalls, the expansion of Medicaid was a financial benefit, although changes to supplemental payments could have a much larger negative effect on hospital finances.

The overall impact of changes to supplemental payments also will depend on how much states adjust base payment rates to compensate for changes to supplemental payments, the analysis found. While states' reliance on supplemental payments as a source of revenue for hospitals has increased, lack of data and transparency on state's use of supplemental payments makes federal oversight of these programs difficult, according to KFF. 

[Also: Most Texans, Floridians want Medicaid expansion, survey shows]

Federal officials are now working to reform how states use supplemental payments in managed care and waivers, as well as the use of provider taxes.

The report said that better data, and monitoring of the effects of coverage changes -- as well as policy changes related to the supplemental payments -- will help to better evaluate hospitals' financial well-being and the ability of safety net hospitals to serve Medicaid and uninsured persons.

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