New York and Massachusetts would likely suffer the biggest blows from the Medicaid DSH allotment reductions.
The fiscal year 2020 DSH allotment reductions would reduce New York’s payments by $1.3 billion, the most in the country, according to the most recent MACPAC analysis. That amounts to 34% of the state’s current Medicaid payments.
In total, DSH allotment reductions would amount to 31% of states’ current DSH payments. DSH allotment reductions will account for 55% of current DSH payments by fiscal year 2025.
But industry overseers question if the money is being directed appropriately, which is why Medicaid supplemental payments need an overhaul, many have said. There is no meaningful relationship between state DSH allotments and the number of “deemed” DSH hospitals, MACPAC said.
Part of the problem is the convoluted and obscure web of Medicaid financing mechanisms that direct supplemental funds, the University of Chicago’s Baicker said. “The challenge with DSH funding is that it is hard to write down a set of rules that guarantee the money sticks with hospitals serving vulnerable populations,” she said.
States draw down federal payments by putting up their own funding through state general funds, as well as taxes and contributions from healthcare providers, hospital districts or local governments. Some states’ shares are more than others; Texas, for instance, offers 40% and the federal government contributes 60%. The intent is to give doctors and hospitals more money to provide uncompensated care.
States can secure greater matching federal funds without necessarily increasing their net contribution to Medicaid. One way to do this is to make DSH payments to government-owned hospitals and divert those payments back to the state’s Medicaid agency via intergovernmental transfers.
Multiple sources told Modern Healthcare that some states are using financing mechanisms like intergovernmental transfers and provider taxes to redirect funding intended for safety-net hospitals. Some academic medical centers are receiving the payments even though they don’t serve many Medicaid patients, they said.
AMCs denied that practice as did the Association of American Medical Colleges, noting that teaching hospitals provide more than a quarter of all Medicaid discharges even though they represent just 5% of all short-term general hospitals. AMCs provide $7.25 billion in charity care and $11 billion in uncompensated care annually, 34% and 30% of the U.S. totals, respectively, the AAMC said.
States figure out how to maximize access to funding, and when one loophole closes, the states find another, experts said.
Hospitals receiving the largest share of state DSH payments in 30 of 42 states analyzed did not provide the largest share of total uncompensated care, a 2012 Government Accountability Office report found. Fifteen states made DSH payments to nearly 60 hospitals that either returned their DSH payments to the state or were not qualified to receive them. Forty-one states made DSH payments to 717 hospitals in 2010 that exceeded the individual hospital’s uncompensated care costs, according to the GAO.
In its 2019 report, the agency found that California, Illinois, Maryland and Missouri received Medicaid DSH funding that exceeded uncompensated care costs.
There is bipartisan interest in getting more funding from Washington and spending less through state circles, the American Enterprise Institutes’ Miller said. Intergovernmental transfers and provider taxes have been a means to boost and exploit DSH funding, he said.
“Some hospitals are getting more money than the care they are actually providing,” Miller said.
If local governments are pulling money from their hospital networks when federal funding comes in, it could have detrimental impacts, research shows.
Local governments reduced their subsidies to public hospitals by an average of $100 for every $100 in DSH funds received, according to an analysis of Southern California hospitals from Mark Duggan, director of the Stanford Institute for Economic Policy Research.
Los Angeles County reduced its subsidies to LAC + USC Medical Center 1-for-1 after it received Medicaid DSH funding. The hospital’s performance declined as the number of births dropped from 18,000 in 1990 to 6,000 in 1995, he found. “Historically, a lot of the money was banked by hospitals to increase their financial assets,” Duggan said. “That money could’ve been used to hire more nurses or make capital improvements in hospitals, but it tended not to be.”