It was easy for Florida GOP Sen. Marco Rubio to describe the difficulty of reforming Medicaid’s disproportionate-share hospital payment formulas.
“Obviously, it depends on states that are benefiting from the current formula versus those that are not,” he told Modern Healthcare earlier this month. “So, it’ll be a tough fight but one we’re going to pursue because it’s fair.”
The program pays about $12 billion annually to states. It’s one of several funding boosts to Medicaid payments for hospitals. But the amount per state fluctuates vastly, locked in at a formula unchanged since 1992. The winners and losers are so distinct it’s difficult for national hospital trade groups to weigh in because state interests are at odds.
This “food fight problem” is by far the biggest hurdle to change, said Shawn Gremminger of the Washington-based advocacy group Families USA. He has worked for years on Medicaid issues including DSH.
“You have a system where there is a defined set of dollars as defined by the aggregate DSH allotments around the country,” Gremminger said. “And unless we’re in a world where we’re growing it, we’re either shrinking the net or rearranging who gets the money, which means some states are guaranteed to lose.”
The leverage for those who want to change the DSH formula is time, driven by the $4 billion in DSH payment cuts mandated by the Affordable Care Act that are slated to start Oct. 1. The states that get the most DSH dollars now would see the biggest financial blow.
Hospital groups, including the American Hospital Association, want a two-year delay to these cuts, which were originally supposed to start in fiscal 2014 but have been repeatedly pushed back by lawmakers. But hospitals have been put on notice that they may need to help pay for them with cuts elsewhere—a nonstarter according to one lobbyist.
A spokesperson for Senate Finance Committee Chair Chuck Grassley (R-Iowa) last week said the senator is considering changes to the formula. “Delay is nothing more than a short-term, budgetary gimmick,” the spokesperson said. “To kick the can down the road any farther without policy changes would be a missed opportunity to ensure sustainability of the program.”
Rubio jump-started legislative talk around DSH reform late last year, suggesting that a state’s DSH allotment be based on its national share of adults living below the federal poverty level.
His state would see a huge boost. Currently, Florida, where about 3.3 million people are uninsured, gets the exact same federal DSH allotment down to the dollar as Connecticut, where about 245,000 people are uninsured.
This breaks down to Florida hospitals receiving less than $70 per uninsured person while Connecticut hospitals get about $921, according to 2018 analysis of 2014 data by the Medicaid and Chip Payment and Access Commission.
The DSH funding map can be very much at odds with a state’s uncompensated-care costs. Rhode Island’s DSH payment equals more than 200% of the state’s hospital uncompensated-care costs, according to MACPAC. Iowa’s is less than 15% of those costs. New Hampshire’s DSH payment is more than 350% of its uncompensated care, whereas for Montana it is just over 8%. For Utah it’s 7.6%.
MACPAC described the disconnect between DSH money and a hospital’s uncompensated-care costs in its latest report to Congress published on Friday.
DSH also sets up a food fight among hospitals within states. Congress has stayed out of the question of which hospitals should get the most money, even though federal law requires states to dispense DSH dollars to hospitals with a certain amount of Medicaid or low-income patients.
Public university medical centers administered by the states often benefit the most. In Arkansas for example, the University of Arkansas for Medical Sciences gets almost the entire state sum, about $62 million in 2012, according to the last available audit. Nebraska Medical Center received $121 million in combined dollars from Nebraska and Iowa, while the University of Iowa Hospitals & Clinics received nearly $48 million. Most of Iowa’s other DSH hospitals received allotments in the low millions.
Then there’s the dicey federal fight spun from the nearly decadelong clash over the ACA’s Medicaid expansion. This came up as an issue in the GOP’s 2017 bills to repeal the ACA.
“I think the tough thing about it is, frankly, both sides have a legitimate point,” Gremminger said. “From the Democratic perspective, why on earth would we shift money in the direction of states that have been making a bad decision, turning down billions of dollars and covering fewer people? From a Republican perspective, why would we protect states that have lower rates of uncompensated care over those with higher rates of uncompensated care?”
