CMS Won’t Penalize Hospitals In States Slow To Expand Medicaid

That sigh of relief you heard Monday was from hospital administrators in nearly two dozen states, including Florida and Texas.

That’s because the Obama administration announced that for the next two years, it doesn’t plan to penalize states that have yet to expand Medicaid coverage under the federal health law by targeting them for reduced Medicaid funding, according to a proposed rule unveiled Monday. That money goes to  hospitals that treat large numbers of poor people.

The health law is funded in part by a gradual reduction in extra Medicaid payments, called disproportionate share hospital, or DSH. Those payments help hospitals that care for a large proportion of poor patients who are covered by Medicaid, or who are uninsured.

The hospital industry agreed to the cuts during the  negotiations over the law on the assumption that expanding coverage to many people who are now uninsured would mean that hospitals would give away less uncompensated care. But since the Supreme Court made the Medicaid expansion voluntary last year, hospitals fear they will lose Medicaid money while at the same time seeing little or no reduction in how much they spend on uncompensated care.

The HHS secretary must come up with a formula that imposes the sharpest cuts on states with the lowest levels of uncompensated care.

Under the law, the $11 billion DSH program will be reduced $500 million next year. But the cuts deepen in 2017 when $1.8 billion is cut, then $5 billion is cut in 2018. How CMS would distribute those cuts has been a major concern for the hospital industry. President Barack Obama asked Congress to delay the cuts until 2015 in his budget proposal early this year, but the fate of the proposal is unclear.

The Centers for Medicare & Medicaid Services proposed on Monday that for the next two years, the DSH dollars be reduced based partly on a state’s percent of uninsured residents (states with the lowest percent of uninsured receive larger reductions). CMS also seeks in the proposal to protect  state DSH funding that is used to increase coverage under Medicaid demonstration waivers.

Rick Pollack, executive vice president of the American Hospital Association, which has sought to delay the cuts, said in a statement, that the proposal was written “in a responsible way based on our preliminary analysis.”

“… since 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,” Pollack said.

The proposed methodology encourages states to target Medicaid DSH payments to high Medicaid volume hospitals and hospitals with high levels of uncompensated care. CMS said it will revisit its DSH funding cuts formula after 2015.