Hospitals hope DSH cut delay leads to long-term solutions

As Congress approved another delay to $4 billion in planned cuts to Medicaid disproportionate-share hospital payments, hospitals are gearing up to rally support for a longer-term solution.

The latest continuing resolution would postpone the funding reduction until Nov. 21 and awaits President Donald Trump’s signature. The reprieve came just days before DSH changes were supposed to go into effect with a CMS final rule slashing $44 billion in funding over six years.

For providers like Alameda Health System in Northern California, that would have meant losing $20 million of its $90 million in DSH funding it receives annually. Alameda’s loss would make up 6% of California’s overall $330 million DSH reduction in fiscal 2020.

DSH funding goes exclusively toward providing primary and preventive care for uninsured patients, according to Delvecchio Finley, Alameda Health’s CEO. The planned cuts would have limited the system’s ability to provide care to its growing vulnerable patient populations moving forward.

“We continue to be concerned,” Finley said.

But the latest delay only postpones the anticipated funding cliff. Finley and other providers are scrambling to convince lawmakers to pass a two-year or longer delay before the Nov. 21 deadline.

This is the fourth time Congress has delayed the DSH changes, which were initially scheduled to go into effect in 2013. Lawmakers anticipated that the Affordable Care Act would lower the costs associated with uninsured care as more people secured coverage, and that shift would reduce the need for DSH payments.

But hospitals have argued that many people who gained health insurance because of the ACA are Medicaid expansion beneficiaries. Medicaid does not reimburse for the full costs of providing care to a population that tends to be poorer and sicker than those with private insurance.

While uncompensated care fell by 23% between 2013 and 2015, increased Medicaid enrollment resulted in a 23% increase in the disparity between hospitals’ cost of services to beneficiaries and the amount received from Medicaid for those services, according to the Medicaid and CHIP Payment and Access Commission’s March 2018 report to Congress.

Medicaid DSH provided more than $12 billion in federal funding to hospitals in fiscal 2018, according to the Kaiser Family Foundation.

So far, lawmakers are giving DSH providers some hope. The House Energy and Commerce health subcommittee in July marked up a bill that would repeal DSH cuts for fiscal 2020 and 2021 and lower the reductions scheduled for fiscal 2022 from $8 billion to $4 billion. Passing that legislation could be a first step toward finding a more permanent solution, hospitals hope.

In May, Rep. Eliot Engel (D-N.Y.) introduced a bill to permanently repeal Medicaid DSH cuts.

“What we need is a full repeal of these cuts codified into law,” Engel said in May. “These scheduled cuts would have a devastating impact on our communities and we need to do everything we can to ensure they never go into effect.”

While hospitals have united in their support to postpone the DSH cuts, they haven’t coalesced around a single, long-term solution as they debate whether the program should divide funding more equally among the states.

Some states have contended the current DSH allocation formula creates wide disparities regardless of the level of need.

Steve Harris, vice president of payer and government affairs for Tampa (Fla.) General Hospital, said he supported the plan proposed by Sen. Marco Rubio (R-Fla.) to change the DSH program distribution formula to base it on each state’s share of adults living under the poverty level. Tampa General receives around $7 million per year of the Florida’s $220 million annual DSH funding.

By contrast, Ohio receives more than $450 million in DSH funding despite having a 6% uninsured rate compared with 13% in Florida.

Rubio’s plan would provide an estimated $600 million in additional DSH funding to Florida, while more populous states like New York and California would lose funding because both have lower poverty rates than the Sunshine State.

“Anything that moves us toward a more equitable solution we’re in support of,” Harris said.