Billions in federal uncompensated-care funds to be cut starting in October

Story​ updated​ July​ 28,​ 2017.

Starting this October, the CMS could begin cutting billions in federal funds meant to help hospitals with uncompensated-care costs.

The Affordable Care Act mandated that Medicaid disproportionate-share hospital funds be cut by $43 billion between fiscal 2018 and 2025. During negotiations over the ACA, hospital lobby groups acquiesced to the cuts 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.

The agency announced its plans in a proposed rulemaking Thursday, sending shudders through the hospital industry since the Medicaid DSH program provides essential financial assistance to hospitals that care for the nation's most vulnerable populations including the poor, children, the disabled and the elderly, according to Tom Nickels, executive vice president of the American Hospital Association.

"[We're] very disappointed that CMS is moving forward with these cuts at a time when rural hospitals struggle to keep their doors open," said Maggie Elehwany, vice president of government affairs and policy for the National Rural Health Association.

The cuts build year over year, starting at $2 billion in fiscal 2018, before making its way to $8 billion by fiscal 2025.

"Our hospitals simply can't sustain cuts of this magnitude without reducing services or scaling back their workforce," said Erin O'Malley, director of policy for America's Essential Hospitals, which represents safety net providers. "The cuts are especially troubling with the prospect of even higher levels of uncompensated care that would result from repeal of the Affordable Care Act."

Aiming to lessen some of the blow, the CMS said the formula used for the cuts is geared toward ensuring that DSH funds reach those providers with the greatest need for financial support. Among other things, the rule would impose a smaller cut in low DSH states. Larger cuts would be felt in states that have the lowest percentage of uninsured, states that do not target DSH payments for hospitals with high Medicaid volumes and states that do not target DSH payments on hospitals with high levels of uncompensated care.

In April, the Medicaid and CHIP Payment and Access Commission, or MACPAC, an independent government panel, found that 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.

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.

Even with the DSH funds now in place, hospitals in both expansion and non-expansion states with a large amount of Medicaid and uninsured enrollees continued to report negative operating margins.

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.

Medicaid DSH 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 an analysis by America's Essential Hospitals.

An​ edited​ version​ of​ this​ story​ can​ also​ be​ found​ in​ Modern​ Healthcare's​ July​ 31​ print​ edition.