Medicaid Payment and Reimbursement

As clock ticks toward massive Medicaid disproportionate share hospital cuts, proposed bill would bring relief

Big Medicaid DSH cuts have been pending for almost a decade but have yet to be implemented. That will change soon if Congress does not act.

September 19, 2023 9:36 am

A congressional bill that would impose additional transparency requirements on providers also would offer a respite from a sizable cut to a key supplemental payment.

A $32 billion reduction to Medicaid disproportionate share hospital (DSH) payments is scheduled to span four years, beginning when federal FY24 gets underway Oct. 1. The Lower Costs, More Transparency Act would push back the start of the cut to FY26.

A scheduled House vote on the bill was postponed Sept. 18, with no immediate announcement of when the vote would take place. The bill apparently did not have the two-thirds support required to meet the threshold for fast-tracked legislation in the House.

The bill can still be considered anytime under normal rules, which would require only a simple majority but also allow for floor debate and amendments that could delay proceedings. Potential obstacles also include the distraction of the looming standoff between the parties over legislation to keep the federal government funded past Sept. 30, plus the need for the bill to ultimately clear the Senate.

Other provisions in the bill extend the graduate medical education program for academic medical centers through FY30, beginning with a $175 million allocation in FY24. Also included are two-year funding extensions, through CY25, for community health centers ($4.4 billion per year) and the National Health Service Corps ($350 million per year).

Sounding the alarm

The Medicaid DSH cuts would amount to 54% of scheduled Medicaid DSH payments in the upcoming fiscal year, according to estimates in a 2023 report by the Medicaid and CHIP Payment and Access Commission (MACPAC).

Such a decrease could “disrupt the financial viability of some safety-net hospitals,” MACPAC said. If the cuts aren’t delayed, they should be phased in more gradually than the current schedule allows, the commission wrote.

The Medicaid DSH cut would coincide with a $943 million reduction in Medicare uncompensated care payments as finalized in the FY24 rule for hospital inpatient payments.

Seeking a delay in the Medicaid cuts, America’s Essential Hospitals wrote a Sept. 14 letter to congressional leaders, with signatures from more than 250 member hospitals.

“These cuts would undermine America’s healthcare safety net and significantly reduce our hospitals’ ability to provide lifesaving services to the communities you represent,” the letter states.

In its own letter, Premier Inc. noted a large DSH cut especially would hamper hospitals amid the ongoing wave of Medicaid eligibility redeterminations that have accompanied the end to continuous-enrollment provisions after the COVID-19 public health emergency.

Members of Congress seem to understand the scenario. In August, a bipartisan group of 51 senators wrote to the chamber’s leadership asking that the looming cut be addressed, stating, “Cuts of this magnitude could undermine the financial viability of hospitals, threatening access to care for the most vulnerable Americans.”

What’s behind the cut

Medicaid DSH reductions totaling $18 billion initially were supposed to start in 2014 as a mechanism to pay for the coverage expansion in the Affordable Care Act (ACA). Subsequent delays have offered relief in the short term but also resulted in increases to the funding reduction target.

“Unfortunately, the projected coverage levels have not been realized and hospitals continue to care for patients for whom they are not receiving payment,” the American Hospital Association (AHA) wrote in an April letter supporting an earlier bill to delay the cut.

The cut would vary drastically by state based on factors such as uninsured rates and the degree to which a state’s DSH funding is targeted to hospitals with high volumes of Medicaid patients and uncompensated care. The percentage decrease in funding would range from 6.1% in South Dakota to 90% in Rhode Island, according to MACPAC.

In theory, the cuts would be especially adverse for safety net hospitals in the 10 states that have not expanded Medicaid as authorized by the ACA, since those hospitals would lose funding without having benefited from the anticipated increase in insured patients. However, MACPAC projects that non-expansion states would face lower percentage reductions (47.3%) in DSH funding compared with expansion states (59.9%), in part based on how uninsured rates would factor into the decrease.

The Medicaid DSH formula has been affected by a change included in 2021 funding legislation. In calculating a hospital’s payment, the 2021 provision calls for excluding costs and payments that are related to services furnished to Medicaid beneficiaries who also have Medicare or commercial insurance.

As detailed in a 2023 proposed rule, the change does not apply to hospitals in the 97th percentile or higher of patients entitled to both Medicare Part A and Supplemental Security Income benefits.

Two sides of the same bill

While the Lower Costs, More Transparency legislation would maintain Medicaid DSH funding over the next two years, terms in the bill that expand site-neutral payments to cover all Medicare drug administration services are projected to create about $380 million per year in federal savings.

In reacting to the provisions as introduced several months ago in committee legislation, the AHA linked site-neutral payment policies with the proposed delay in the Medicaid DSH cuts. In other words, one was being used to help fund the other.

“Robbing Peter to pay Paul is not the way to achieve the objective and would add to the financial fragility of many hospitals,” the AHA said in a statement attributed to Stacey Hughes, executive vice president.


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