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Federal Budget Deal Delays Hospital Cuts -- For Now

The budget deal reached last month delays $1.1 billion in cuts to funding for hospitals serving large percentages of uninsured people. But that postponement will only make 2016 hurt a whole lot more.

When the U.S. Supreme Court upheld the Affordable Care Act last June but took state Medicaid expansion from obligatory to optional, it left many urban hospitals in trouble. That’s because expanding Medicaid to more low-income people was supposed to help make up for cuts to another program that compensates hospitals that serve large numbers of the poor and uninsured.

But thanks to lobbying around the budget deal reached last month, the Disproportionate Share Hospital program dodged $500 million in cuts in 2014 and another $600 million in 2015. Without another successful lobbying effort, though, 2016 will come with a $1.2 billion cut to the program—up from $600 million—as the postponed reductions ratchet up the severity of future reductions.

“The way it was done, it gives kind of a breather, but then it increases the steepness of the cliff,” said Paul Beddoe, the associate legislative director for health policy at the National Association of Counties. 

Urban, public hospitals are commonly the recipients of DSH support, but there are rural systems as well. Like Medicaid, the federal government reimburses states for their Disproportionate Share Hospital programs at different rates, using a formula based on per capita income. In fiscal year 2012, federal funding was $12.4 billion. California, New York and Texas combined for about $3.8 billion of that money. Smaller states such as Louisiana and New Jersey received $732 million and $660.5 million respectively. 

Because policymakers expected all states to expand Medicaid and thus reduce their uninsured populations, the Affordable Care Act also included a schedule of accelerating cuts to DSH payments, reaching $5.6 billion by fiscal year 2019. After 2022 the program technically returns to its level before the health care overhaul along with increases for inflation, but some experts say it’s not likely Congress will let that happen. 

“The delay is a particularly big deal for our county hospitals that are not doing the Medicaid expansion,” Beddoe said. “We also can’t overlook the fact that there are public hospitals in states that are expanding that will breathe a sigh of relief because of the high number of undocumented people they serve.” 

Grady Memorial Hospital in Atlanta falls under the former category. Georgia has refused to expand Medicaid, and 32 percent of the hospital’s patients are uninsured. Another 25 percent have Medicaid, which typically offers lower lower payments to health care providers. 

At $90 million a year, Grady is the largest DSH recipient in the state. That money makes up about 14 percent of the hospital’s budget, said Matt Hicks, Grady’s vice president of government relations. The hospital already nearly closed its doors in 2007 but managed to reorganize under a new tax structure that relies heavily on philanthropy. The hospital is facing a $45 million cut between now and 2018. 

With private support mostly maxed out and the difficulty of securing more local property tax revenue, the only option for a hospital that admits some 27,000 patients a year is downsizing, Hicks said.

“If the states don’t step up through some other mechanism such as Medicaid expansion, then hospitals will have to turn to local governments, and if the counties and cities don’t step up there’s no option but to have reduced services,” he said.

In Massachusetts, which passed a reform package in 2006 that mirrors the Affordable Care Act, the reduction of safety-net payments increased reliance on Medicaid to keep operations going at many hospitals, studies found. Studies also found the percentage of the state’s uninsured population seeking care at safety-net hospitals increased, and those types of hospitals suffered far more financially after the implementation of reform.  

America’s Essential Hospitals, a lobbying group representing public hospitals, fought hard for the postponement of DSH reductions as part of a longer legislative strategy, said Shawn Gremminger, assistant vice president for legislative affairs. While opposed to DSH cuts in general, the group is working to set in place a system of reductions that reflect hospitals' real finances. The group is trying to attach an amendment to the Medicare “doc fix” bill that would require an annual report from the Department of Health and Human Services on factors such as updated levels of uncompensated care, charity care and other areas.

“Our goal is not to delay DSH cuts indefinitely – that may very well be what happens —our goal is to get Congress to sit down and come up with a better program going forward," Gremminger said. 

Correction: A previous version of this story incorrectly stated the level of cuts to the program that were scheduled for 2014 and 2015. 

Chris covers health care for GOVERNING. An Ohio native with an interest in education, he set out for New Orleans with Teach For America after finishing a degree at Ohio University’s E.W. Scripps School of Journalism. He later covered government and politics at the Savannah Morning News and its South Carolina paper. He most recently covered North Carolina’s 2013 legislative session for the Associated Press.
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