A former Medicaid leader doubts another delay has much chance of passing Congress.

Sept. 7—Slated to have billions of dollars in Medicaid uncompensated-care federal funding cut in less than a month, hospitals are aiming for a last-minute reprieve.

The long-delayed cuts in Medicaid disproportionate share hospital (DSH) funding will begin Oct. 1 and total $2 billion in FY18. The previous delays have increased the size of the Medicaid DSH cuts required by the Affordable Care Act (ACA) from $17 billion to $43 billion. The cuts originally were slated to begin in FY14 but have been delayed twice, and now they are scheduled to occur from FY18 through FY25.

In FY15, $11.9 billion in federal funding was allotted to states for DSH payments, and of that amount states spent a total of $10.6 billion, according to a report by the Medicaid and CHIP Payment and Access Commission (MACPAC).

Now hospitals are hoping for another reprieve from the cuts, which could be especially worrisome for safety-net hospitals.

“One big plan that hospitals are pushing is to get Congress to delay or eliminate the cuts altogether,” said Barbara Eyman, principal at Eyman Associates. “A lot of hospitals are working hard on that front.”

The Centers for Medicare & Medicaid Services (CMS) issued a proposed rule in July to specify the formula for dividing the cuts among states. Then it will be up to states to determine how to divide the cuts among their hospitals.

The CMS methodology would implement the largest cuts, by dollar amount, in New York ($329 million), New Jersey ($154 million), and California ($153 million). As a share of each state’s DSH funding, the largest cuts would occur in Massachusetts (31 percent), Vermont (28 percent), and Washington, D.C. (25 percent), according to the rule.

“This is making it pretty real, for hospitals to see those numbers in black and white,” Eyman said.

The CMS-proposed allocations give relatively more weight to the number of uninsured individuals in a state, according to a Manatt analysis.

“This should favor states that did not expand Medicaid under the ACA and consequentially have higher rates of uninsurance,” the analysis stated.

Cindy Mann, director of the Center for Medicaid and CHIP Services under President Barack Obama, agreed that the cuts will fall harder on hospitals in states that expanded Medicaid eligibility.

“For many of the hospitals that serve a large number of both Medicaid and uninsured individuals, it will have a pretty significant effect,” Mann said in an interview. 

Among the changes brought by the repeated delays was an acceleration of the cuts. The first year of cuts originally was slated to total $500 million as opposed to $2 billion.

“It doesn’t just affect Medicaid and uninsured people, it affects hospitals,” said Mann, now a partner at Manatt. “So it will affect their ability to serve a broader community of patients.”

The DSH reductions were intended as an offset to the cost of coverage expansions under the ACA after that legislation cut the number of uninsured, who hospitals are required by federal law to treat regardless of compensation. Total hospital uncompensated care for Medicaid beneficiaries and uninsured patients fell by about $4.6 billion (9.3 percent) between 2013 and 2014, and the largest declines occurred in expansion states, according to MACPAC.

But critics of the DSH cuts point out that 19 states did not expand Medicaid eligibility, and the full extent of expected cost reductions has not materialized.

“The level of uncompensated care that continues—even in Medicaid expansion states—is larger than anticipated,” Eyman said.

According to MACPAC, the FY18 DSH cut in 20 states is projected to be larger than the decline in hospital uncompensated care from 2013 to 2014 (the last year for which data are available).

“So there’s a real need for the DSH dollars,” Eyman said.

Lobbying to Avoid Cuts

Hospitals are looking to include a delay of the Medicaid DSH cuts in a must-pass reauthorization of the Children’s Health Insurance Program (CHIP).

“That would make a whole lot of sense,” Eyman said, noting that the previous delay in implementation of the cuts also was paired with a CHIP extension as part of the Medicare Access and CHIP Reauthorization Act of 2015. 

The American Hospital Association (AHA) urged in an Aug. 23 letter that either Congress repeal the DSH cuts or CMS delay implementation past FY18 “due to our significant concerns with the underlying data CMS proposes to use in the DSH Health Reform Methodology (DHRM).”

AHA said a lack of transparency in the formula used to divvy the cuts among the states hampers the ability of state governments and stakeholders to assess how the formula will affect state DSH allotments, particularly heading into FY18.

The delay should last until the underlying data can be evaluated and made public, AHA said.

“I agree with the points that AHA raises about the transparency and the quality of the data, or lack thereof, but really Congress is the one that should be stepping in at this point,” Eyman said.

Sen. Ron Wyden (D-Ore.) the ranking member on the Senate Finance Committee, which has lead jurisdiction on Medicaid, was noncommittal when asked Thursday about the prospect of including a delay in upcoming CHIP funding legislation.

A spokesman for the Federation of American Hospitals said he was unaware of a specific legislative package that would delay the cuts, but his organization remained “hopeful” that a delay would happen.

America’s Essential Hospitals, which represents safety-net hospitals, sent a Sept. 5 letter to congressional leaders—cosigned by 75 other patient and provider groups—that warned its members’ average operating margins would drop to -3.6 percent without Medicaid DSH funding.

“We urge Congress to continue the delay of DSH cuts until a more sustainable solution is reached,” the groups wrote.

Similarly, Karen Fisher, JD, chief public policy officer for the Association of American Medical Colleges, said in a written statement that her organization plans to push Congress to delay the DSH cuts and any other CHIP or year-end legislation.

“If these cuts were put in place, this will cause hardship for many Medicaid beneficiaries and the hospitals that provide care for them," Fisher wrote.

However, Mann was doubtful Congress would avert the cut again.

“I have not picked up that there is significant momentum for a further delay,” Mann said. “It’s happened twice before when it was supposed to go into effect, but it does not seem to be in the conversation at this point.”

Responding to Cuts

The hospitals most vulnerable to the cuts include safety-net hospitals and teaching hospitals, according to Mann.

Hospitals that may face DSH cuts need to work hard to find dollar-for-dollar offsets, Eyman said, especially safety-net hospitals with margins that “are at or near or below the break-even point.”

Categories of savings that hospitals are exploring include reductions in service hours in clinics, staff cuts, and reductions in investments in new equipment, Eyman said.

Mann warned that Medicaid DSH cuts could contribute to future hospital closures.

“Certainly we’ve seen hospitals closing, and particularly we’ve been seeing that in rural areas,” Mann said. “Depending on the patient mix of the hospital and the state of the hospital, it could be a very significant additional hit on their bottom line.”

Rich Daly is a senior writer/editor in HFMA’s Washington, D.C., office. Follow Rich on Twitter: @rdalyhealthcare

Publication Date: Thursday, September 07, 2017