Hospitals approve of delay in changes to disproportionate-share payments

Hospital leaders are roundly applauding the CMS announcement in a final rule released Tuesday that it will not go forward with a change to disproportionate-share payments that was set to begin in fiscal year 2018.

Advocates for safety net hospitals had argued that the new formula, which relied heavily on hospital-created Medicare cost reports instead of the number of days of inpatient care for Medicaid, dual eligible or disabled patients, was inaccurate and unfair. It would have meant a cut that started at $2 billion in 2018 and increased in the following years.

The Affordable Care Act mandated cuts to DSH payments with the assumption that Medicaid expansion and increased rates of health insurance coverage would reduce hospitals' burden of uncompensated care. But when the Supreme Court upheld the ACA it also ruled that Medicaid expansion must be optional for states. Nineteen states have declined to expand.

Hospital executives said that the new formula would therefore reward states that did not expand Medicaid, which is not in line with the goals of the administration. It also didn't consider the variety of accounting standards used throughout the country and the cost of training medical residents.

In the final rule, the CMS said it plans to institute quality control and data improvement measures to the Medicare cost report before it is used to calculate DSH payments. This should be done by fiscal 2021. For fiscal 2018 and following years, the agency will try to find “an appropriate proxy for uncompensated care” and will address it in further rulemaking.

The decision was made “in light of the significant concerns expressed by commenters.”

A February report from the Medicaid and CHIP Payment and Access Commission noted that better data is needed and that “payments should be better targeted toward the hospitals that serve a disproportionate share of Medicaid and low-income patients and have higher levels of uncompensated care, consistent with the original statutory intent.”

American Hospital Association Executive Vice President Tom Nickels said in a statement Tuesday that he applauds working to improve the accuracy and consistency in determining the cost of treating uninsured patients.

“We will continue to advocate that CMS adopt a broad definition of uncompensated care that includes Medicaid shortfalls and discounts to the uninsured, and fully accounts for graduate medical education expenditures,” he said.

Chip Kahn, President of the Federation of American Hospitals said his organization is also glad to see the delay because it will preserve the ability to care for uninsured patients.

“It is gratifying that CMS clearly listened and it is essential that critically important DSH funds will continue to flow where they are most needed,” he said in a blog post.

It was a bit of good news in the rule that hospitals found mostly disappointing. CMS said it will keep a 1.5% cut to reimbursement that is intended to recoup hospital overpayments. In total and over the past few years and ending next year, the CMS will collect $11 billion in alleged overpayments due to mistakes in codes.