Reform Update: Delaying DSH cuts may hamper Medicaid expansion

The president's proposed delay in cuts to disproportionate-share hospital payments could be undermining efforts to expand Medicaid in some states.

Healthcare analysts tracking efforts to expand Medicaid eligibility as part of Patient Protection and Affordable Care Act have seen prospects for the expansion dim in some states where state officials appeared more supportive a couple of months earlier. Part of the blame for the change was laid on the Obama administration for proposing a one-year delay in Medicaid disproportionate-share hospital payment cuts as part its recently proposed fiscal 2014 budget.

The Affordable Care Act includes $18.1 billion in cuts over 10 years to the payments aimed at offsetting high uncompensated-care costs at hospitals. Hospitals accepted the cuts as part of an understanding that the law would greatly decrease uncompensated-care costs through expanded coverage—including Medicaid coverage.

The proposed delay “takes a lot of the advocacy pressure off the states,” Caroline Pearson, a vice president at Avalere Health, said about the Obama budget proposal. “The hospitals had the best argument for how they were hurt in states that didn't expand … that goes away if they delay this cut, so I think that's taken a little bit of the wind out of their sails.”

It's a marked shift from just a few weeks ago when a growing number of Republican governors were expressing at least some support for an expansion but faced potential opposition by Republican-led legislatures. But this week, when Avalere issued it latest update (PDF) on Medicaid expansion efforts, some of those GOP-led states were now seen as unlikely to expand, including Michigan, Ohio and Pennsylvania.

Andy Carter, president and CEO of the Hospital & Healthsystem Association of Pennsylvania, agreed that the financial impact on hospitals of impending DSH cuts is a “key message” his members take to legislators. However, he emphasized that the cuts are established law and any delay would need to clear a sharply divided Congress.

For now, pushback based on the proposed delay has yet to “rise to the top of the argument” over the Medicaid expansion.

“Right now, people are basically having the conversation around the assumption that the DSH cuts will happen,” Carter said.

Carter said he remained optimistic legislators would approve an expansion before they complete their budget work at the end of June.

In other Medicaid news:

• The Republican-controlled Florida House on Friday passed its plan to provide health coverage to about 115,000 residents but rejected a wider expansion sought by the Senate, the Associated Press reported.

  The bill's passage set up a standoff between the House and Senate in the final week of the legislative session. The 71-45 vote approved a plan to offer coverage to one-tenth of the 1.1 million Floridians that would be covered under a bill by a Republican senator. The Senate bill is favored by Republican Gov. Rick Scott, House Democrats, and a mix of medical, business and labor groups.

  House Republicans have adamantly refused to accept federal funds tied to the Patient Protection and Affordable Care Act over concerns it will contribute to the federal government's historic debt.

  Instead of the 2010 healthcare law's expansion up to 138% of the federal poverty level, the House plan would help fund more limited extend private coverage to residents up to 100% of the federal poverty level.

  The Senate plan would use more than $50 billion from the federal government over the next decade to give an estimated 1.1 million residents vouchers so they could purchase their own private health insurance.

  The House and Senate rejected a straight-out Medicaid expansion early in the legislative session, saying they did not want to expand an already broken program.

• On Wednesday, a Louisiana House panel turned down the Medicaid expansion, but a Senate committee is expected to take it up next week, according to the AP.

  The House Health and Welfare Committee voted to reject the expansion allowed under the 2010 healthcare overhaul.

  Republicans opposed the Medicaid expansion and Democrats supported it.

  Expansion opponents, including Republican Gov. Bobby Jindal, said it would be too costly for the state and would expand an inefficient and outdated Medicaid program. Like Republicans in many other states, they questioned whether Congress will continue funding the expansion at the higher payment rates in later year or leave states scrambling to fill the gap.

  Supporters said Louisiana could save money with the expansion while also offering thousands of working adults access to health insurance in a state where one in five residents are uninsured.

  The nonpartisan Legislative Fiscal Office estimated the Medicaid expansion could save Louisiana as much as $510 million over 10 years, with the state receiving up to $15 billion in federal funding to cover about 500,000 people through Medicaid.

  However, Shawn Hotstream, an analyst, said the savings were frontloaded to the first three years when the federal government would cover the full cost of the expansion, while the state would start facing costs in 2020 and thereafter.

• In Missouri, the Republican-led Senate rejected a Democratic attempt on Monday to fund a Medicaid expansion, according to the AP.

  The chamber rejected an attempt to insert $890 million of federal funds into Missouri's budget to expand Medicaid eligibility to an estimated 260,000 lower-income adults.

  The vote was the latest in a series of similar defeats in the Missouri Legislature for the Medicaid expansion backed by Democratic Gov. Jay Nixon.

  However, this vote carried a bit more weight because it ensured that neither the Senate nor the House version of the budget includes the Medicaid expansion. Under legislative rules, negotiators cannot insert money into the final budget that wasn't in either chamber's plan.

Follow Rich Daly on Twitter: @MHrdaly