A government watchdog agency shined the spotlight on the funding disparities within Medicaid's disproportionate-share hospital program, finding four states' DSH payments exceeded their hospital uncompensated-care costs.
The Government Accountability Office report released on Monday illustrated the unevenness of federal DSH spending as California, Illinois, Maryland and Missouri exceeded uncompensated-care costs, but Tennessee's DSH payments represented 0.7% of its Medicaid funding. Maine's payments represented nearly 97% of Medicaid funding.
The report comes as Congress debates whether to try to change its policy for allocating the $12 billion in DSH funds.
In 40 states, DSH payments made up less than 20% of hospital Medicaid payments. In eight states it exceeded 20%. Medicaid had already paid hospitals more than they spent on Medicaid patients before hospitals received their DSH funds in 15 states.
GAO analysts said they looked especially at hospital compensated-care costs, the amount of DSH payments made by each state's Medicaid program, and the characteristics of the hospitals that received the money.
Overall, these payments cover 51% of the uncompensated-care costs incurred by hospitals that receive DSH dollars.
About a quarter of the $178 billion in Medicaid funding for hospitals come from supplemental programs. In 2017, federal and state DSH payments combined just exceeded $18 billion.
GAO analysts referenced a 2018 study from the Medicaid and CHIP Payment and Access Commission that looked at five states and found states and hospitals prefer supplemental payments like DSH because hospitals can track their recouping of provider taxes. Some states levy provider taxes in order to fund their share of the DSH payments — which they have to pay in order to collect their federal allotments.
That study also said hospitals and state Medicaid officials value boosts to supplemental payments rather than increases to Medicaid base payments because they find them more predictable.
The report comes as the Congress weighs how to move forward with another delay to the ACA's mandated cuts, set to take effect Oct. 1.
Sen. Marco Rubio (R-Fla.) floated a proposal late last year to overhaul the formula that determines a state's federal share of DSH payments. The formula hasn't been changed since 1992 when Congress locked in allocations that are huge for some states and paltry for others.
Congressional leaders haven't indicated any willingness to wade into a furiously contentious issue with clashing state interests. The only proposal lawmakers have considered so far is the provision approved by the House Energy and Commerce Committee, where the Obamacare cuts would get another two-year delay and the U.S. comptroller general would have to come up with policy recommendations for a more equitable formula.
For Senate Finance Committee Chair Chuck Grassley (R-Iowa), the report calls for Congress to take a closer look.
"This report is further evidence that the $50 billion in Medicaid supplemental payments are complex to the point of inefficient. That complexity, in addition to continuing opacity in the process, may be contributing factors to why the Inspector General finds the Medicaid program ripe for waste, fraud and abuse," the senator said in a statement. "The best disinfectant is sunlight. I hope this report can convince my colleagues in Congress that reforms in this program are badly needed."
The data the GAO analyzed for the report come from audits from 2014 — the year the Affordable Care Act went into effect and expanded Medicaid in more than 20 states. Currently 36 states and the District Columbia have expanded Medicaid.
The report's authors noted the agency's own prior analysis of previous DSH audits from 2010, where the GAO found that nine states didn't accurately calculate the uncompensated-care costs of more than 200 hospitals — estimates that were used to determine DSH payments.
According to the GAO's prior work, 15 states made DSH payments to nearly 60 hospitals that "either did not retain their DSH payments or were not qualified to receive them."