Federal Medicaid advisors in their extensive annual report urged Congress to rethink Medicaid disproportionate share hospital cuts to nudge the money toward hospitals that need it most.
The Medicaid and CHIP Payment and Access Commission (MACPAC) recommended that this serve as a step for lawmakers to recalibrate the DSH allotments which now "have little meaningful relationship to measures meant to identify those hospitals most in need."
Starting Oct. 1, states are slated to see $4 billion in cuts to their DSH allotments—reductions that will particularly hit states that get high amounts under current law.
In its report, MACPAC acknowledged the hospital trade group push to delay the cuts again, but noted that "doing so will require Congress to come up with cuts elsewhere to offset the budgetary impact of such delays."
The advisors also warned that the cuts, mandated by the Affordable Care Act and so far always delayed by Congress, could destabilize hospitals if they hit all at once. The cuts would nearly double to $8 billion in 2020.
So in line with MACPAC's previous analysis and discussions, the report recommended that the cuts should start at $2 billion in the first year, and target the states with left-over, unspent funds from the prior year. Then, the commissioners suggested, Congress should favor states with higher shares of the nation's poor.
"The Commission has long held that DSH payments should be better targeted to hospitals that serve a high share of Medicaid-enrolled and low-income uninsured patients and that have higher levels of uncompensated care, consistent with the original statutory intent of the law establishing DSH payments," the report said.
In its deep-dive, MACPAC took a comprehensive look at the overall Medicaid hospital landscape since passage of the ACA, zeroing in on a paradox of Medicaid expansion: how in aggregate hospitals have traded not getting paid for treating the uninsured for getting underpaid under the Medicaid program. The ACA put the DSH cuts into place assuming that all states would expand Medicaid and that hospitals subsequently wouldn't need the same amount of supplementary money to make up for treating no-pay patients.
But MACPAC found that even though hospitals have seen a decline in bad debt and charity care since the ACA—an 8% drop, according to Medicare cost reports from 2015 to 2016—overall Medicaid shortfalls grew by 24% in the same year. Since 2013, reported Medicaid shortfalls have increased by $6.8 billion to $20 billion total.
MACPAC indicated that this increase gets at the fundamental weakness with the current DSH program: the fact that the money doesn't necessarily go to the hospitals that need it the most.
The commission couched its analysis by pointing out that from state to state the Medicaid shortfall fluctuates widely. In 2014 DSH hospitals in 15 states reported that they didn't have any Medicaid shortfall. Meanwhile, DSH hospitals in 11 other states and the District of Columbia said their Medicaid shortfalls exceeded 50% their total uncompensated care costs.
Big picture, hospitals in expansion states reported less than half the uncompensated care costs as a percent of their operating expenses as hospitals in non-expansion states.
While the commission said that it will continue looking at overall DSH policy as part of its "broader examination of all types of Medicaid payments to hospitals," a restructuring of the scheduled cuts would be a start.
The panel's recommendations for Congress to phase in the DSH cuts more slowly and to skew the money toward states with high numbers of poor residents would "improve the relationship between DSH allotments and measures related to hospital uncompensated care costs," MACPAC said.
Shortly after the report was released, America's Essential Hospitals, which represents the nation's safety-net hospitals said it appreciated the "thoughtful work" behind MACPAC's recommendations but urged Congress to stop the October DSH payment reduction.