Medicare Payment and Reimbursement

HFMA Comments on Medicare DSH Payment Reductions

March 13, 2014 11:23 am

March 10, 2014

Marilyn Tavenner
Centers for Medicare & Medicaid Services
Department of Health and Human Services
P.O. Box 8011
Baltimore, MD 21244-1850

Re: Medicare DSH Payment Reductions

Dear Ms. Tavenner:

The Healthcare Financial Management Association (HFMA) would like to thank the Centers for Medicare & Medicaid Services (CMS) for the opportunity to provide further comment on the reductions to FFY 2014 Medicare DSH payments.

HFMA is a professional organization of more than 40,000 individuals involved in various aspects of healthcare financial management. HFMA is committed to helping its members improve the management of and compliance with the numerous rules and regulations that govern the industry.


With less than two months remaining in the open enrollment period it appears highly unlikely that the Congressional Budget Office’s (CBO’s) May 2013 estimate of a reduction in the uninsured by 14 million individuals in 2014 will be achieved. CMS used this estimate to calculate the reduction in Medicare DSH payments, which as required by the Affordable Care Act (ACA) was intended to be based on actual reductions in the uninsured. Given the widely anticipated shortfalls in coverage expansion and the CBO’s recent downward revisions of the estimated reduction in the uninsured as a result of the ACA, HFMA strongly believes that CMS should:

  • Rebase the FFY2014 reduction in Medicare DSH payments to reflect the CBO’s revised estimate
  • Implement a mechanism to reconcile the estimated amount of DSH reduction that occurs prior to a given year with the actual results to more accurately reflect changes in coverage and eliminate unintended harm that will occur to hospitals if uncompensated care payments are reduced without a commensurate reduction in the uninsured


In its comment letter (link included below) regarding the proposed FFY 2014 IPPS rule, HFMA expressed deep concern regarding CMS’s use of the Congressional Budget Office (CBO) figures to estimate health insurance coverage expansion in 2014 to derive factor two of the DSH reduction formula. Given many states’ refusal to expand Medicaid and develop health insurance exchanges or support enrollment efforts our members believed the CBO’s projected 2014 reduction in the number of uninsured individuals was overly optimistic. Our concern was that using the CBO’s estimate would reduce Medicare DSH payments to hospitals beyond what was merited by the actual reduction in hospital uncompensated care resulting from fewer uninsured individuals. Not only would this financially harm safety net and other hospitals that provide uncompensated care, but it was not Congress’s intent in the ACA to decouple the reduction in the number of uninsured from the reduction in Medicare DSH payments for indigent care.

Ongoing Issues with Coverage Expansion

Unfortunately, over the past months our concerns have been realized in the weaker than projected enrollment numbers. The CBO has recognized this and revised its 2014 enrollment projections downward by one million individuals for a net reduction in the uninsured of 13 million1.

Even with the adjustment, HFMA continues to believe that the revised projected exchange and Medicaid numbers are overly optimistic. Even though 4 million individuals have enrolled in exchange plans through the first three weeks of February and enrollment volume for the remaining five weeks is expected to be strong HFMA questions whether the actual number of new enrollees will meet the CBO’s current projections. While enrolling 2 million individuals over the next five weeks is possible based on enrollment rates from December, we believe the actual number of additional enrollees necessary to achieve the revised CBO target is considerably higher.

There is significant evidence that many of the individuals who have enrolled have thus far failed to make their first premium payment. Executives at health insurance plans participating in the exchanges estimate that between 15 to 30 percent of exchange enrollees have not paid their first premium payments. As further confirmation of this, we are hearing from our members that they are now seeing some claims for individuals who present with exchange coverage denied because the patient did not pay their first month’s premium in a timely fashion. Ultimately, these claims will increase the cost of uncompensated care born by those who are commercially insured.

Assuming the number of enrolled individuals who ultimately don’t pay trends to the lower end of the range, actual enrollment based on paid premiums would only be approximately 3.2 million individuals through January. Or assuming a 20 percent overall nonpayment rate, in order to meet the CBO’s projection the exchanges will need to enroll a total of 7.5 million individuals. To achieve that number, an additional 4.3 million individuals would need to enroll over the next five weeks.

Second, it is an open question as to how many exchange enrollees were actually uninsured prior to January 1st. Early estimates from insurers, insurance brokers, and consultants place the percentage of exchange enrollees previously insured at 66 percent or greater. While these estimates are probably overstated, there was a significant transitioning of individuals from health plans that were non-compliant with the benefit mandates included in the Affordable Care Act into exchange plans. As a result, the net reduction in the number of uninsured individuals as a result of gaining coverage will be much lower than actual exchange enrollment. However, this phenomenon still does not appear to be fully captured in the CBO’s February 2014 estimate. Given these two factors, HFMA believes that the number of net newly insured via commercial coverage in 2014 will be significantly lower than the CBO’s projection. We believe the actual number is likely to be much closer to the CMS Actuary’s estimate of 2.9 million2,3 individuals.

While the Medicaid/CHIP enrollment numbers on the surface appear to be on target to meet or exceed the CBO’s projections of 8 million newly covered individuals, a closer examination also provides cause for concern. As of the end of January, CMS is reporting 8.9 million Medicaid determinations. However, at least 15 of the states are reporting renewals in their determinations data which significantly overstates the number of “newly determined” enrollees. While the CMS actuary estimates that Medicaid/CHIP enrollment will ultimately meet the CBO number by enrolling 8.7 million uninsured individuals, other estimates suggest otherwise. In a recently released analysis, Avalere Health estimates that only 2.4 to 3.5 million of the individuals determined eligible for Medicaid from October through January are new enrollees. As a result, Avalere projects that only 5 million new beneficiaries will gain coverage through Medicaid/CHIP in 2014.

Based on the projections discussed above, HFMA believes that the 2014 actual net reduction in the number of uninsured will range from approximately eight to 11.6 million individuals. Even under the most optimistic current projection of coverage expansion (11.6 million newly insured) is 17 percent lower than the CBO May 2013 estimate of 14 million individuals on which the Medicare DSH reduction is based. HFMA believes this is unacceptable and CMS should address this issue by:

  1. Immediately rebase the Medicare DSH reduction for FFY 2014 to reflect the CBO’s updated estimate of the reduction in the uninsured as a result of ACA. The newly calculated DSH amounts should not only be increased to reflect the more recent CBO number for the remainder of the federal fiscal year, but be further adjusted to compensate for inappropriate DSH reductions that have occurred in previously adjudicated FFY 2014 claims. 
  2. As HFMA recommended in our proposed 2014 IPPS rule comment letter, CMS should reconcile the estimated DSH reduction amount and final settle based on actual data related to the uninsured and DSH payments with providers for FY 2014 and subsequent years. Otherwise, this program runs the risk of reducing DSH/uncompensated care payments to providers beyond what was statutorily intended by Congress in the the ACA. We would recommend using the Current Population Survey to provide a base year (2013) and actual year (2014) given the relatively short lag time in data. If CMS is truly locked into using data from the CBO by statute, we would ask that you work with the CBO to develop a retrospective reconciliation for 2014 and subsequent years in order to maintain a similar comparison.

HFMA looks forward to any opportunity to provide assistance or comments to support CMS’s efforts to refine and improve the IPPS. As an organization, we take pride in our long history of providing balanced, objective financial technical expertise to Congress, CMS, and advisory groups.

We are at your service to help CMS gain a balanced perspective on this complex issue. If you have additional questions, you may reach me or Richard Gundling, Vice President of HFMA’s Washington, DC, office, at (202) 296-2920. The Association and I look forward to working with you.


Joseph J. Fifer, FHFMA, CPA
President and Chief Executive Officer
Healthcare Financial Management Association 

About HFMA

HFMA is the nation’s leading membership organization for more than 40,000 healthcare financial management professionals. Our members are widely diverse, employed by hospitals, integrated delivery systems, managed care organizations, ambulatory and long-term care facilities, physician practices, accounting and consulting firms, and insurance companies. Members’ positions include chief executive officer, chief financial officer, controller, patient accounts manager, accountant, and consultant.

HFMA is a nonpartisan professional practice organization. As part of its education, information, and professional development services, HFMA develops and promotes ethical, high-quality healthcare finance practices. HFMA works with a broad cross-section of stakeholders to improve the healthcare industry by identifying and bridging gaps in knowledge, best practices, and standards.

Link to Comment Letters
2014 IPPS Proposed Rule 

1 The Budget and Economic Outlook: 2014 to 2024, The Congressional Budget Office, February 2014, page 119 

2 National Health Expenditure Projections, 2012-22: Slow Growth Until Coverage Expands And Economy Improves; Madison, John A. Poisal, Christian J. Wolfe, Joseph M. Lizonitz and Devin A. Stone Gigi A. Cuckler, Andrea M. Sisko, Sean P. Keehan, Sheila D. Smith, Andrew J. Health Affairs, 32, no.10 (2013):1820-1831

3 Avalere Health’s 2014 Outlook projects 5 million exchange enrollees however, that figure includes individuals who were previously insured.


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