Medicaid DSH cuts mean crisis for some hospitals
The DSH cuts were delayed until 2017 by last year’s Medicare payment law, but the cuts are still set to come and will be substantial
Grady Memorial Hospital in Atlanta is facing the possibility of reducing services for low-income populations as a way to adapt to Medicaid DSH cuts.
Hospitals dependent on Medicaid disproportionate share allocations must discover new financing models for low-income patients, or else lobby their state governments to make policy changes.
According to a new study in Health Affairs, many struggling American hospitals are reliant on Medicaid disproportionate share payments as a source of revenue, even as these payments fade away and uninsured patients remain so in states that aren’t expanding Medicaid eligibility.
Evan S. Cole, an associate project director at Georgia State University’s Health Policy Center, and colleagues combed through hospital financial data and identified 551 hospitals with weak operating margins. Of those, 42 percent are “highly reliant” on Medicaid DSH payments, contribuing more than 2.5 percent of their revenues, Cole and colleagues found.
The Medicaid DSH program was intended to offset hospitals uncompensated care costs and gave states the flexibility to allocate it, with the national spending approximating $11 billion in recent years. The advent of the Affordable Care Act was intended to bring universal insurance coverage with subsidies for low-income populations and Medicaid eligibility for everyone under the poverty line, and, assuming every state would expand Medicaid, DSH payments were placed on a schedule to phase out.
[See also: CMS issues DSH final rule.]
The DSH cuts were delayed until 2017 by last year’s Medicare payment law (the same law that delayed ICD-10 until 2015) but the cuts are still set to come and will be substantial, totalling $35 billion over the course of 2017 to 2024.
Also, the delay may may only concentrate the DSH cuts, Cole and colleagues argue. Texas hospitals, originally set to see a 5 percent reduction in their federal allocation, will now see them fall 20 percent, according to the researchers.
The decision of 25 states not to expand their Medicaid programs, “combined with residual coverage gaps, may leave as many as 30 million people uninsured, and hospitals will bear the burden of their uncompensated care costs,” they wrote.
Medicaid DSH payments were never intended to constitute a significant level of revenue at hospitals.
In Atlanta, Grady Memorial Hospital, the state’s largest hospital and a historic safety net provider, is facing the possibility of reducing mental health, obstetrics and gynecology services for low-income populations as a way to adapt to the DSH cuts, absent a change in policy from state leaders who so far have been reluctant to consider expanding Medicaid eligibility.
State leaders really have three options if they want to alleviate the DSH conundrum, according to Cole and colleagues.
For one, they can expand Medicaid eligibility, probably the preferred option among most physicians and hospitals. They can keep distributing the dwindling DSH payments according to existing methodology, or change the distribution of the payments according to new Centers for Medicare & Medicaid rules.
In Georgia, policymakers could change the allocation model and direct more DSH funds to hospitals with the greatest proportions of uncompensated care. The benefits of this would be avoiding cuts of the sort Grady Memorial is considering and avoidance of deeper cuts in later years, Cole and colleagues argue. On the flip side, that approach could adversely affect some hospitals in rural Georgia, where a number of smaller hospitals have been closing in recent years.
The choice represents something of a paradox, Cole and colleagues argue.
“Responding to CMS’s incentives may financially harm hospitals, but Medicaid DSH payments were never intended to constitute a significant level of revenue at hospitals without high volumes of Medicaid patients or high levels of uncompensated care," they wrote in Health Affairs. Thus, CMS’s final rule on reductions to Medicaid DSH payments could be considered a correction to policies that subsidized hospitals using these funds.”
