Medicare Deal Delays But Deepens Hospital Cuts

The law Obama signed Thursday marks the third time in three years that cuts to safety-net hospitals have been pushed back but the first time the amount of cuts has increased.
by | April 17, 2015
Dr. Alex Curtis at a hospital in rural Alabama. (David Kidd)

Hospitals that serve a lot of poor and uninsured people won’t face cuts until 2018 as part of the health package President Barack Obama signed into law Thursday, marking the third delay in three years and deepening the scale of the reductions.

Safety-net hospitals have long received additional money through Medicaid from the Disproportionate Share Hospital (DSH) program. The Affordable Care Act (ACA), which anticipated major reductions in the number of uninsured people through Medicaid expansion, scheduled DSH cuts from 2014 to 2020 totaling about half of the program’s size. But because many states have refused to expand Medicaid and it’s unclear whether the ACA will offset the cuts, hospitals have argued now isn’t the time to gut DSH.

They successfully argued for a delay in late 2013 that pushed the cuts to 2016. They delayed the cuts again for another year in a 2014 deal. The Medicare payment overhaul signed into law Thursday pushes the start of cuts to 2018, but now the total reductions and their annual size are significantly greater.

Originally the cuts came to about $18 billion and never went beyond $6 billion in a given year, but the new schedule of reductions tops out at $43 billion, starting with $2 billion in 2018 and reaching $8 billion by 2024. That’s about two-thirds of the entire DSH program, according to hospital lobbyists, who say the cuts have grown deeper as Congress has used DSH money to pay Medicare doctors and offset the repeated delays.

America’s Essential Hospitals, a trade group for public hospitals, acknowledged there’s no returning to the level of DSH spending before the ACA, but the stall in Medicaid expansion has certainly helped make their case that hospitals caring for the most vulnerable can’t sustain cuts. They also argue, however, that there’s evidence the ACA’s coverage expansions might not be enough, and the cuts go too deep. A study last year in the journal Health Affairs examined California, an enthusiastic supporter of the ACA, and found public hospitals there will have unmet DSH costs of more than $1 billion even by 2019.

The Medicaid and CHIP Payment and Access Commission, a committee that advises Congress on health policy, will release a report in February 2016 taking a comprehensive look at remaining uncompensated care across the country. That should help determine what’s appropriate in terms of future cuts, said Shawn Gremminger, the assistant vice president for legislative affairs at America’s Essential Hospitals.

“DSH and safety-net funding should meet the needs of hospitals and be consistent with coverage changes,” he said.

The delay in cuts will no doubt come as a relief in the capitals of states that haven’t expanded Medicaid, which are coming under pressure from hospitals to act. But Tennessee, where lawmakers twice rejected Medicaid expansion this year, scored a special provision in the recent health package that provides $53 million in DSH funding a year for the next decade. The state previously agreed to forego DSH funding as part of a special waiver that greatly expanded the state’s Medicaid program.

In Georgia, Gov. Nathan Deal is convening a panel to study the needs of the state’s safety-net hospitals and put the state in the best position to maintain as much DSH funding as possible once cuts do start. The federal government has set out a method that attempts to account for remaining levels of uncompensated care. Matt Hicks, the lobbyist for Atlanta’s Grady Memorial Hospital, says the Georgia panel is likely to come to a similar conclusion as the California study.

“The challenge is there will still be uninsured people even after the ACA is fully implemented,” he said. “Even in states that have expanded, there are still uninsured people, and there will be a need for supplemental funding to pay for that care.”