Moody's: Loss of DSH Payments Will Squeeze Hospitals

Under the health reform law, disproportionate share hospital payments will be slashed heavily, and hospitals that treat large numbers of low-income patients will face significant credit challenges, according to a report from Moody's Investors Service.

The federal government provides Medicare and Medicaid DSH payments to hospitals with high levels of charity care and high numbers of Medicaid patients. Under the Patient Protection and Affordable Care Act, DSH payments are expected to be reduced by more than $64 billion through 2019. More specifically, Medicaid DSH payments will be cut 50 percent by 2019 (totaling $14.1 billion), while Medicare DSH payments will be axed 75 percent (totaling $49.9 billion). The cuts begin this October.

The loss in funding will especially impact hospitals in states that will not expand their Medicaid programs, leaving those hospitals with high levels of charity care and less Medicaid dollars to cover those costs, Moody's analysts said.

Moody's said ultimately, five credit challenges will arise from the DSH payment cuts:

•    In states that reject the Medicaid expansion, hospital uncompensated care costs may rise.
•    Charity care funding may lag in some states, which may impair hospitals' financial performance.
•    Hospitals, particularly safety-net hospitals, will most likely face rating pressures.
•    Although Medicaid DSH payments are scheduled to come back in 2022, "federal budget austerity could change that."
•    State ratings may fluctuate due to the still-unknown consequences of the PPACA.

"States that opt out of Medicaid expansion will have to choose whether to compensate for the shortfalls with their own funds or leave hospitals to absorb the costs, which will increase rating pressure on the hospitals," Nicole Johnson, Moody's senior vice president, said in a news release. "States that choose to fund uncompensated care costs themselves could face budgetary strain."

More Articles on Hospitals and DSH Payments:

Supreme Court Rejects Hospitals' Suit Over Disproportionate Share Payments
Study: Hospitals in States With No Medicaid Expansion Face Financial Crisis
7 Statistics on Disproportionate Share Hospital Payment Cuts

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