CMS Outlines Cuts to Hospitals That Treat Low-Income Patients

On Monday, CMS issued a proposed rule detailing a payment reduction mandated under the Affordable Care Act to hospitals that treat a disproportionate share of low-income patients, Modern Healthcare reports.

The Medicaid disproportionate-share hospital payment reductions were developed as an offset for the cost of the ACA's Medicaid expansion and are based on the assumption that the ACA's coverage expansions would reduce a larger portion of hospitals' uncompensated-care costs. The ACA requires $18.1 billion in total reductions from fiscal year 2014 through FY 2020 (Daly, Modern Healthcare, 5/13).

Under the Medicaid expansion, U.S. residents with incomes up to 138% of the federal poverty level would have been eligible for coverage in the program. However, the U.S. Supreme Court's ruling on the ACA allowed states to opt out of the expansion (California Healthline, 3/15).

Details of Proposed Rule

Under the proposed rule, CMS would gradually reduce funding to the $11 billion DSH program, beginning with a $500 million reduction in FY 2014. Reductions to the program then would increase to $1.8 billion in FY 2017 before a final reduction of $5 billion in FY 2018.

In recent months, DSH executives in states that have declined to participate in the Medicaid expansion expressed concern that they would lose Medicaid funding. In addition, they would see little or no reduction in uncompensated-care costs, Kaiser Health News' "Capsules" reports.

To address those concerns, CMS proposed basing DSH cuts over the next two years on each states' percentage of uninsured residents (Galewitz, "Capsules," Kaiser Health News, 5/14).

However, the proposed rule notes, "Consequently, hospitals in states [that expand Medicaid] may experience a deeper reduction in DSH payments than they would if all states were to implement the new coverage group" (Modern Healthcare, 5/13).

According to AP/U-T San Diego, hospitals in some states stand to lose tens of millions of dollars in funding under the proposed rule. For example, Texas hospitals could lose more than $56 million in FY 2014, hospitals in Pennsylvania could lose nearly $34 million and those in Missouri could lose about $26 million (Kennedy, AP/U-T San Diego, 5/13).

The proposed rule is open for public comment through July 12 and likely would take effect on Oct. 1, unless Congress approves President Obama's FY 2014 budget proposal, which would delay the cuts until FY 2015, Reuters reports (Kelly, Reuters, 5/13).

Reactions to Proposed Rule

The proposed rule drew praise from the National Association of Public Hospitals and Health Systems, which advocates for safety-net hospitals, Modern Healthcare reports. NAPH Senior Vice President for Advocacy Beth Feldpush in a statement said, "We obviously agree 100% with that caution, and we think Congress should delay all of the DSH cuts to allow for policymakers to have a more informed and rational discussion on this, as well" (Modern Healthcare, 5/13).

Further, NAPH said the cuts should be delayed until the impact of Medicaid expansion on the uninsured becomes clearer. "The Affordable Care Act's disproportionate share hospital reductions are neither justified nor sustainable," the group said (Reuters, 5/13).

American Hospital Association Executive Vice President Rick Pollack in a statement said that the proposal is written "in a responsible way based on our preliminary analysis." He added, "[S]ince some states have yet to decide whether to expand Medicaid, this proposed rule will not discourage expansion, nor will it penalize hospitals in those states that have yet to make a decision" ("Capsules," Kaiser Health News, 5/14).

Analysts said CMS' proposed cuts over the next three years are manageable for U.S. for-profit hospital systems, Reuters reports. Brian Tanquilut, a Jefferies analyst, said the proposed reductions have "left the door open for states that have not agreed to Medicaid expansion yet without penalizing them for it" (Reuters, 5/13).