CMS Lays Out Formula for Medicaid DSH Cuts

CMS has published a proposed rule on Medicaid disproportionate share hospital payments, in which hospitals and health systems that treat high volumes of low-income populations would lose billions in Medicaid funds starting in October, but a new methodology was introduced.

Under the Patient Protection and Affordable Care Act, Medicaid DSH payments to hospitals will be cut by $18.1 billion from fiscal year 2014 to FY 2020. Next year, hospitals will lose a cumulative $500 million, and in FY 2015, they will lose $600 million. The Medicaid DSH cuts were put into the law because Medicaid expansion and the health insurance exchanges are expected to reduce uncompensated care levels at hospitals.

The proposed rule stated the federal government would adjust Medicaid DSH reductions for FY 2014 and FY 2015 only. There would be separate DSH reduction pools for low-DSH states and other states, and CMS would then have a formula for distributing the reductions in each pool based on several factors outlined in the PPACA. More specifically, the government's DSH reductions to states would be based one-third on a state's uninsured population, one-third on states that don't target DSH payments to high-Medicaid hospitals and one-third on states that don't target DSH payments on hospitals with large levels of uncompensated care.

CMS said this methodology will attempt to encourage states to allocate Medicaid DSH payments to safety-net hospitals that need the funds most.

However, in his annual budget, President Barack Obama proposed delaying Medicaid DSH payments until 2015 as states still grapple with the ramifications of the health law's Medicaid expansion. The Supreme Court ruled last year that Medicaid expansion was optional, and many states have already said they will not expand the health program for the nation's poor. This has put safety-net hospitals in those states in precarious situations, as they are expected to simultaneously lose Medicaid DSH funds and not see gains from added Medicaid rolls.

Bruce Siegel, MD, president and CEO of the National Association of Public Hospitals and Health Systems, said in a statement the government's proposed methodology to target DSH funding toward high-need hospitals is a positive move, but he still called the DSH reductions "neither justified nor sustainable."

"[The proposed] rule appears to recognize that the fluid nature of coverage expansion and uncertain future for uncompensated care preclude a long-term rule on the DSH reduction methodology," Dr. Siegel said. "We agree, and further believe Congress should delay the Medicaid DSH cuts to allow time for informed, rational discussions on DSH funding. We also believe that, regardless of how the cuts are made, states must do the right thing for the uninsured and other vulnerable people and move forward with expansion as quickly as possible."

Last week, Rep. John Lewis (D-Ga.) proposed the DSH Reduction Relief Act, which would delay Medicare and Medicaid DSH payment cuts until the government's 2016 fiscal year, a move supported by both the NAPH and American Hospital Association.

CMS is accepting comments on the proposed rule through July 12.

More Articles on DSH Payments:

Rep. John Lewis Proposes to Delay DSH Cuts
CMS' Fiscal Year 2014 IPPS Proposed Rule: 10 Points to Know
Budget Breakdown: How President Obama's FY 2014 Budget Would Affect Hospitals

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