Panel Calls for Targeted Payments to Safety-Net Hospitals

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By Nathaniel Weixel

Feb. 1 — More than one-third of Medicaid disproportionate share hospital (DSH) payments are made to hospitals that don't serve a particularly high share of Medicaid and other low-income patients, according to a report to Congress published Feb. 1 by the Medicaid and CHIP Payment and Access Commission (MACPAC).

The commission recommended the Department of Health and Human Services should ensure that the DSH funds are better targeted to the safety-net hospitals that need the money most. The congressional advisory panel called for more complete and timely data on all Medicaid hospital payments to better evaluate current policy and possible new approaches to targeting DSH payments.

According to the report, the scheduled reduction of Medicaid DSH allotments of 16 percent in fiscal year 2018 and up to 55 percent in FY 2025 makes such targeting particularly important.

According to MACPAC, states spent a total of $18 billion in DSH payments ($8 billion in state funds and $10 billion in federal funds) in 2014.

Congress originally intended that DSH payments would support the hospitals that serve the greatest share of Medicaid and other low-income patients, MACPAC Chairwoman Sara Rosenbaum said in a statement, but the MACPAC analysis showed that isn't necessarily the case.

DSH Reductions

Reductions in state DSH allotments are scheduled to begin in FY 2018. Payments will be reduced by $2 billion in FY 2018, and will increase by $1 billion annually through FY 2025.

The DSH cuts were an offset for the Affordable Care Act and were premised on the assumption that the law's coverage expansion would reduce the number of uninsured patients at hospitals. But when Medicaid expansion became optional, hospitals in nonexpansion states faced the possibility of losing out on the influx of insured patients while also losing their DSH funding.

America’s Essential Hospitals, which represents safety-net hospitals, in a Feb. 1 statement said informing lawmakers about DSH funding is crucial in light of the impending cuts.

“As we approach a fiscal cliff for federal support of essential hospitals, these findings provide timely information policymakers need to avoid the damage DSH cuts will inflict on millions of uninsured and other vulnerable patients, as well as the hospitals on which they depend,” Bruce Siegel, president and CEO of the hospital group, said. “We strongly agree with the commission’s conclusion that DSH allotments and payments should be better targeted at states and hospitals that serve a disproportionate share of Medicaid beneficiaries and low-income patients, and that have higher levels of uncompensated care. As MACPAC notes, this is what Congress intended.”

Data Shortage

MACPAC said its recommendation builds on a March 2014 recommendation that the HHS collect and report non-DSH supplemental payment data.

Although the Centers for Medicare & Medicaid Services has begun collecting some provider-specific data on these payments, “these data are not publicly available in a format that enables analysis,” the report said. “Improvements in DSH policy cannot be achieved by considering DSH payments in isolation. Rather, a full accounting of all Medicaid payments individual hospitals receive is needed to ensure that states are paying these institutions consistent with statutory principles of economy, efficiency, quality, and access.”

The report didn't make any recommendations as to how the HHS should better target the funding. Examples of policy approaches that could be explored in the future include:

  • • modifying the criteria for DSH payment eligibility;
  • • redefining uncompensated care for Medicaid DSH purposes; and
  • • rebasing states’ DSH allotments.
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    By Nathaniel Weixel

    To contact the reporter on this story: Nathaniel Weixel in Washington at nweixel@bna.com

    To contact the editor responsible for this story: Steve Teske at steske@bna.com