Once again, the nation's safety net is staring down a severe cut to Medicaid disproportionate-share hospital funding, as it has almost every year since 2014. This time, hospitals and their vulnerable patients face a $4 billion reduction Oct. 1 that would slash one-third of the program's funding in one year.
So Congress again must consider an action it has taken four times already since the cuts were scheduled to start: delay them. Previous delays enjoyed strong bipartisan support, and that's clearly the case again this year—even as some question whether another delay just kicks the can down the road.
But that's the wrong question to ask, and it marginalizes the real issue underlying the DSH reductions: The cuts were intended to pay for coverage increases that never materialized.
In mandating the Medicaid DSH cuts, Congress baked hard numbers into law based on an assumption that rising levels of coverage would lessen the need for DSH support. In other words, fewer uninsured equals less uncompensated care equals less DSH: That was the premise and promise that helped ease hospitals' concerns about supporting this policy change.
But various federal and state policy decisions and legal actions have limited access to coverage since those optimistic forecasts. The net effect has been a swelling of the number of uninsured far beyond what was envisioned. In March 2011, the Congressional Budget Office estimated that 21 million people would be uninsured in 2017. U.S. Census data now puts that number at 28.5 million.
More uninsured patients are only part of the problem. Even Medicaid expansion hasn't lived up to expectations for changing uncompensated care costs. In its report to Congress last month, the Medicaid and CHIP Payment and Access Commission estimated the Medicaid shortfall—the difference between what Medicaid pays and hospitals' costs—at $4 billion versus a $1.6 billion decline in unpaid costs for uninsured patients since 2010. One step forward, more than two back.
So hospitals are losing ground on two fronts. Yet, the DSH cuts still loom—$44 billion over the next six years, which would gut the program. After this year's withering $4 billion cut, the annual reductions balloon to $8 billion, or about two-thirds of current spending.
Such cuts would devastate essential hospitals, the primary source of safety-net care and critical services, such as trauma care, in communities across the country. These hospitals operated with an average margin of 1.6% in 2017, less than half the previous year's margin and one-fifth that of other U.S. hospitals. Without any Medicaid DSH funding, these hospitals would suffer a 3% loss. So, it's easy to see why the draconian cuts this year and beyond require immediate congressional action.
If the DSH cuts aren't bad enough, they would come on top of two years of sharp reductions in what Medicare pays hospitals for care at off-campus outpatient clinics. These so-called "site-neutral" cuts created new financial pressures that, combined with rising uncompensated care costs, leave no cushion to absorb DSH cuts. Services to help improve the health of the most vulnerable would dwindle, doors would close, and the patients and communities served by essential hospitals would be left behind.
The effect would ripple far beyond an essential hospital's walls. These hospitals often are their community's largest employer, and the DSH cuts would put jobs and economic activity at risk. The average essential hospital employs more than 3,000 people and, through its spending, drives more than $1 billion in statewide economic output. These 300 hospitals alone house 31% of the nation's Level I trauma centers and 39% of the nation's burn-care beds. They also train an average of nearly 240 physicians annually, more than three times that of other U.S. hospitals.
Congress must recognize that the Medicaid DSH reductions policy fell short of its promise to the safety net, and lawmakers must end the cuts before the cuts end access to care for millions.
