Federal funds still needed despite drop in uncompensated care

Although uncompensated-care costs have dropped by billions of dollars in recent years, hospitals serving uninsured and Medicaid beneficiaries still desperately need federal funding that's slated to be cut, according to a government agency report.

The Affordable Care Act called for Medicaid disproportionate-share hospital funds to be cut by billions of dollars, under the assumption that expanded coverage from the healthcare reform law would reduce the need for the funding. Congress delayed the cuts, which were supposed to start in 2014, after hospitals complained that increased patient traffic wasn't outpacing uncompensated-care costs. The most recent extension expires Sept. 30.

However, despite a drop in uncompensated costs, disproportionate-share hospital funds remain critical to these hospitals, according to a report sent to Congress last month by the Medicaid and CHIP Payment and Access Commission, or MACPAC, an independent government panel.

As the disproportionate-share hospital fund cuts loom, MACPAC called on the CMS to update the methodology used to distribute disproportionate-share hospital payments to states in order to minimize the negative impact on providers. MACPAC suggested that the CMS delink disproportionate-share hospital payments from hospital uncompensated-care costs and recalculate the payments based on the efficacy of value-based care initiatives that hospitals launch to benefit uninsured beneficiaries, or make other changes.

Between 2013 and 2014, total hospital uncompensated care for Medicaid-enrolled and uninsured patients fell by about $4.6 billion, or 9.3%, with the largest declines in states that expanded Medicaid, according to MACPAC's report. Medicaid disproportionate-share hospital payments totaled $18 billion in fiscal 2014, the last year for which a figure is available.

Despite the decrease, safety-net hospitals continue to struggle financially, MACPAC said. Hospitals in expansion and non-expansion states with a large amount of Medicaid and uninsured enrollees continued to report negative operating margins before disproportionate-share hospital payments indicated a continued need for the funds.

MACPAC also found that 20 states face disproportionate-share hospital cuts in 2018 that are larger than the decline in hospital uncompensated care in their state between 2013 and 2014.

The disproportionate-share hospital reduction will equal $2 billion in fiscal 2018, before making its way to $8 billion by fiscal 2025.

Medicaid disproportionate-share hospital payments have allowed safety net hospitals to offer trauma centers and other services along with robust OB-GYN services.

In 29 cities across the country, these hospitals are the only ones with trauma centers, according to analysis by America's Essential Hospitals.

House Republicans' suggested repealing the Medicaid disproportionate-share hospital fund cuts from 19 states that didn't expand Medicaid in the American Health Care Act. The bill died in the House before receiving a floor vote, and there are no apparent plans to delay the disproportionate-share hospital cuts.