DSH: the brewing battle over billions that could get complicated

The turnaround would be quick for a Senate proposal to redistribute the $12 billion in Medicaid disproportionate share hospital funds ahead of a key September deadline, but the push is underway for a policy change where state interests clash.

Leaders of key congressional committees haven't yet signaled willingness to take on legislation that would shake up how the federal government disburses the money. Any overhaul would dramatically shift the amount of funds available for states to distribute to their hospitals—potential increases of millions of dollars in some cases and steep losses in others.

Florida Republican Sen. Marco Rubio, whose state is one of the biggest losers under a funding formula that has remained unchanged by Congress since 1992, released a discussion draft in December and asked for extensive, specific feedback from stakeholders around the country by Jan. 25. Rubio's proposal would base the payment formula on each state's share of the U.S. population living below poverty.

Analysis from the Congressional Research Service (CRS) of state demographics paints a picture of what's in play politically for representatives of the states with hundreds of millions of dollars potentially at stake.

Tennessee, whose GOP senior Sen. Lamar Alexander chairs the Senate health committee, could have access to more than $200 million in additional funding because it holds 2.3% of the country's residents living below the federal poverty line.

Iowa—a low-DSH state whose senior GOP Sen. Chuck Grassley chairs the Senate Finance Committee—could get a more than $50 million boost over current funding.

Texas and California, both with large and powerful delegations and a sizable share of people living below poverty, would also see increases.

But other states that substantially benefit under the status quo—as long as Congress continues delaying the scheduled ACA cuts—could get hundreds of millions of dollars in reductions. These include New York, New Jersey, Missouri and Massachusetts.

New York's delegation boasts Senate Minority Leader Charles Schumer, a Democrat. The chairmen of the two influential health panels in the House, Reps. Frank Pallone of the Energy & Commerce Committee and Richard Neal of the Ways & Means Committee, represent New Jersey and Massachusetts respectively.

If Congress is able to act this year on a new policy, lawmakers' deadline would be Sept. 30 when $4 billion in cuts to the disproportionate share hospital payments (DSH), mandated by the Affordable Care Act but so far never implemented, are scheduled to start. Hospitals want another delay.

At stake in keeping current policy are the vast disparities in what each state receives, as reported by the Medicaid congressional advisory panel MACPAC.

Current law assigns Wyoming the lowest Medicaid DSH payment, roughly $3.72 per uninsured patient according to MACPAC data, whereas Massachusetts gets $1,576 per uninsured. The District of Columbia receives more than $2,000 per uninsured and Utah gets about $60.

The numbers fluctuate just as wildly when looking at the DSH payments as a percentage of total hospital uncompensated care costs. Rhode Island's DSH payment represents more than 200% of the state's hospital uncompensated care costs, according to 2015 data analyzed by MACPAC. Tennessee's allotment represents just 14% of those costs. New Hampshire's DSH payment is more than 350% of uncompensated care whereas New Mexico's is just 23%.

But it's unclear whether lawmakers will have the willingness or bandwidth to wade into the battle this year. Key committees haven't made commitments to look at the policy yet.

"It's an important policy that affects real patients, not only hospitals," Grassley of the Senate Finance Committee said. "If the committee decides to take action, the solution needs to rely on vetted policy, not gimmicks."

The House Energy & Commerce Committee also does not have public plans to tackle the issue this year, although Rubio's fellow Floridian, Democratic Rep. Kathy Castor who sits on the committee, told Modern Healthcare she hopes to see work on a policy change.

"It needs to be done," she said.

A senior Democratic aide predicted Congress will simply opt for another delay of the cuts in a package that will include other key Medicaid priorities: the territorial Medicaid funding is also due to expire Sept. 30.

But the gauntlet is thrown, and Craig Becker, president of the Tennessee Hospital Association said he expects more proposals about DSH to come. His group has discussed the policy with Alexander, who only a few years ago secured the state a permanent DSH payment that they weren't getting before.

"We really appreciate that [Rubio] put this forward, we certainly need it, and Tennessee from what we see would benefit," Becker said, with the caveat that the group isn't ready to endorse the proposal yet.

He also acknowledged the different arrangements states have that complicate a policy change.

"Everybody's DSH is so different—everyone has a different deal," he said.

Eric Boley of the hospital association in Wyoming said he is "excited and grateful" for Rubio's proposal that could bring in a potential windfall for the state.

But the hospitals in states that would lose are on the alert.

"Missouri hospitals would be especially vulnerable to a readjustment in the formula for allocating DSH funding," said Dave Dillon, spokesman for the Missouri Hospital Association.

As in other high DSH states, Missouri has a large number of hospitals that get payments under the current formula: nearly 100, according to the 2012 DSH audit data.

"DSH resources are allocated to support local care at hospitals throughout the state, rather than just a few safety net medical centers. This means Missourians can receive care close to home," Dillon said, noting that statutory changes would affect a high number of hospitals.

States like Missouri pose a sharp contrast to others like Arkansas, where only three in-state hospitals and one mental institution received DSH money according to the last publicly available audit. And in that state the University of Arkansas for Medical Sciences gets almost the entire state allotment— $62 million in 2012.

New York, where more than 200 mental institutions and hospitals get DSH payments ranging up to nearly $250 million for one hospital, according to 2012 data, faces a similar dilemma for its constituent hospitals.

"Virtually all our hospitals get DSH cuts," said Kenneth Raske, president of the Greater New York Hospital Association. "It's not the same amount across the board, but some have huge numbers that would put their ability to be fiscally viable at risk."

National industry groups have a tightrope to walk. Beth Feldpush of America's Essential Hospitals, which represent large DSH hospitals around the country, said the organization is still reviewing the Rubio proposal and said the group's main priority for Congress is a halt to the scheduled DSH cuts.