When hospitals backed the 2010 health reform law, they expected the significant cuts in disproportionate share payments (DSH) would be offset by the fact that Medicaid expansion would cover previously uncompensated charges.
However, the Supreme Court ruled that Medicaid expansion was optional, and Gov. Rick Perry has been firm in his opposition for Texas.
DSH payments provide financial assistance to hospitals that serve a large number of low-income patients, such as people with Medicaid and the uninsured. Medicaid DSH payments are the largest source of federal funding for uncompensated hospital care.
The Affordable Care Act cuts the DHS payments by 75 percent across the board in 2014. To minimize the impact of the cuts, the federal government created a formula to restore some of the DSH funds to reduce the impact based on the proportion of remaining uninsured residents.
Some states—such as Texas—that do not plan to expand Medicaid will be offering coverage to a greater number of people in their insurance exchanges, while continuing to leave most low-income, uninsured people without coverage. DSH cuts will still move forward in those states, placing a burden on hospitals that provide the most uncompensated care.
A recent New England Journal of Medicine article attempts to put a price tag on that.
If Texas does not expand Medicaid, it will lose about $2.5 billion, or $32 per patient day, in DSH funds between 2014 and 2020. If it did expand Medicaid, it would lose about $4.4 billion, or about $58 per patient day, according to an analysis by Vanderbilt professor John Graves. Although cuts are greater for states that expand Medicaid, the program’s compensation to hospitals more than makes up for the difference.
Texas had a federal DSH allotment of $957 million in fiscal year 2011.
Graves pointed out that of the top five states with the most unintended DSH reductions, three—Texas, Louisiana and Florida—have already announced they will not expand Medicaid.
“Expanded insurance through the exchanges alone will trigger lower DSH payments to hospitals,” Graves said. “The problem comes in states where much of the uncompensated care provided will remain the same if Medicaid is not expanded, yet DSH cuts will still occur. Hospitals will need to recoup these DSH losses either by providing less uncompensated care, or by shifting the costs onto everyone else.”
According to Graves, about 43 percent of uninsured Texans are above the threshold for Medicaid expansion and eligible for the exchanges.
Between 2014 and 2020, Medicaid DSH payments will be cut by $18.1 billion, and a new formula to Medicare DSH payments will also cut federal funds to hospitals that treat higher numbers of the uninsured. In total, $51 billion in DSH payments are projected to be cut during that time span, according to the study. The fiscal cliff deal passed earlier this week will cut an additional $4.2 billion in DSH funding in the next decade.
Nearly 3 out of 4 U.S. hospitals currently receive DSH funds. Most payments go to large hospitals, and about two-thirds go to teaching hospitals.
Steve Jacob is editor of D Healthcare Daily and author of Health Care in 2020: Where Uncertain Reform, Bad Habits, Too Few Doctors and Skyrocketing Costs Are Taking Us. He can be reached at [email protected].
