The nation's 250-plus safety net hospitals, which serve a disproportionate share of poor and uninsured patients, still face unique challenges.
Architects of the Affordable Care Act made the reasonable assumption that expanded health insurance coverage would alleviate much of their uncompensated care burden. The law mandated a gradual reduction in the extra money sent to safety net hospitals for treating a population with greater need for complex care.
But the coverage expansion has not played out as planned. Nineteen states, including Florida and Texas with their huge poor and uninsured populations, have not expanded Medicaid. Exchange enrollment has fallen short of anticipated levels. And Medicaid reimbursement, on which most safety net hospitals rely, remains below the actual cost of care.
Yet the CMS continues to adjust its formula for distributing disproportionate-share payments (DSH) for safety net hospitals based on the original assumptions. The budget for fiscal 2017—an estimated $9.6 billion—is already one-third of what would have been paid without the ACA.
And in its proposed rules for 2017, the CMS seeks to change the formula for distributing that reduced sum in ways that will cause additional harm to many safety net hospitals.
At the Medicare Payment Advisory Commission's prodding, the agency over the next three years plans to switch to a formula that relies mostly on the amounts of uncompensated care and charitable care each hospital claims on its Medicare cost report. Previously, it relied mostly on the number of Medicaid, dual-eligible and disabled patients each hospital served.
In theory, this switch should distribute the shrunken pool of money in a more equitable fashion. Hospitals with the largest burdens of uncompensated care will get a higher share of the fund.
But there are three major problems with this approach. First, it rewards hospitals in states that failed to expand Medicaid, and thus reduces the pressure on their political leaders to act.
In political terms, it is a shift of funding from states like California, New York and Illinois to states like Texas, Georgia and Florida. Before politicians in those states start cheering, it should be noted that the magnitude of the overall cuts in DSH payments will outweigh any benefits they might gain from the new weighting formula.
The second problem is the nature of the Medicare cost reports. The CMS has revamped the form for reporting charitable and uncompensated care. But the reality is that accounting standards, especially at not-for-profit hospitals and health systems, are all over the map.
While for-profit systems are more likely to report true costs for their uncompensated care, not-for-profits are more likely to report unpaid care as closer to their charges, largely a fictitious number. That may be good for keeping the tax collector at bay (it inflates their charitable care claims), but it's hardly a rational basis for distributing desperately needed DSH money.
The CMS attempts to deal with this by applying a cost-to-charge ratio based on the actual cost of care, also included in the reports. But it applies an average ratio to all safety net hospitals, which winds up penalizing any hospital that tries to engage in honest accounting.
The final problem is the formula fails to include the additional cost of training medical residents. Medical schools rely on hospitals whose patient populations are disproportionately poor. On average, a safety net hospital trains about 270 physicians a year—six times more than non-safety net teaching hospitals, according to America's Essential Hospitals, their trade association.
The CMS should make adjustments in the final rule. It should issue clear guidelines for reporting charitable and uncompensated care in Medicare cost reports. It should include more money for training the next generation of physicians.
And the next Congress should reconsider the assumption in the ACA that uncompensated care for the poor and uninsured would begin to fade away. As long as exchange enrollment lags and many states refuse to expand Medicaid, the nation's safety net hospitals will need—and deserve—additional support.