The Medicaid DSH cuts were one of the ways the healthcare overhaul offset the cost of an expansion of Medicaid eligibility to all legal residents with incomes of up to 138% of the federal poverty level. The reduction was based on the assumption that the law's coverage expansions would reduce much of the uncompensated-care costs of hospitals.
The Medicaid coverage expansion, which less than half of the states have approved, is fully federally funded for the first three years before that funding begins to taper down to a permanent 90% match. It is expected to add 12 million new enrollees to Medicaid by 2022, according to March estimates by the Congressional Budget Office.
President Barack Obama's fiscal 2014 budget proposed delaying $500 million in Medicaid DSH cuts by pushing them back one year, while deriving the same total amount of DSH savings required by the 2010 healthcare overhaul by fiscal 2021. The delay was supposed to give hospitals more time to address problems that arose in the initial phase of the expansion.
Rep. John Lewis (D-Ga.) introduced a bill May 9 to delay for two years the Medicaid and Medicare DSH cuts required by the healthcare overhaul. That legislation was praised by some hospital advocates as necessary to prevent major revenue losses at safety net hospitals as their states decide whether to undertake the Medicaid expansion.
“This will allow for coverage expansions to be more fully realized,” Rick Pollack, executive vice president of the American Hospital Association, said in a written statement.
The Supreme Court's decision upholding the law also eliminated any penalties for states not undertaking the expansion. Since then, many Republican state leaders have opposed the expansion over concerns that future federal support for the program is uncertain and that major changes are needed to address access and fraud problems in it before it is grown.
The proposed rule argued that the DSH cuts actually could fall more heavily on hospitals in states that do undertake the expansion. State reductions in their uninsured rates would cut their allocation of DSH payments based on the number of uninsured in each state.
“Consequently, hospitals in states implementing the new coverage group that serve Medicaid patients may experience a deeper reduction in DSH payments than they would if all states were to implement the new coverage group,” the rule stated.
That ran counter to the traditional pitch of hospital officials and state political leaders backing expansion who have consistently warned that the DSH cuts would hit hospitals hardest in states that do not expand Medicaid.
For instance, Kentucky Gov. Steve Beshear, a Democrat, said his May 9 decision to expand the program stemmed in part from his concern that without expansion, hospitals in the state facing $287.5 million in DSH cuts “would be forced to find alternative ways to address the sudden drop in their budgets.”
Some healthcare experts have warned that proposals to delay the DSH cuts already have impacted the contentious partisan debate over expansion that continues in some states by potentially eliminating hospitals' financial-viability argument that supported expansion.
Supporters of the expansion said they have yet to see any impact of proposals to delay those cuts on deliberations in states still actively considering approval of the expansion this year.
The proposed rule included a methodology to carry out $1.1 billion in reductions over the next two years and will offer a new formula after that, according to a CMS fact sheet. The fiscal 2014 and 2015 methodology aims to encourage states to target their Medicaid DSH allotments received from the federal government to hospitals with high volumes of Medicaid patients and high levels of uncompensated care.
The temporary reduction methodology drew praise from an advocate for safety net hospitals, which have urged delay in the DSH cuts until it becomes clear the extent with which states have expanded their programs.
“We obviously agree 100% with that caution and we think Congress should delay all of the DSH cuts to allow for policymakers to have a more informed and rational discussion on this, as well,” Beth Feldpush, senior vice president for advocacy at the National Association of Public Hospitals.
The CMS will accept comments on the rule through July 12, 2013.
Follow Rich Daly on Twitter: @MHrdaly