DSH Cuts and Uncompensated Care Costs Impacting Hospital Reimbursement

Medicare payments to hospitals that serve a disproportionate share of poor people will continue to decrease in fiscal year (FY) 2015.  In FY 2015 CMS calculates that the total amount available for the Medicare disproportionate share hospital (DSH)  payment will decrease  by $1.225 billion compared to the amount available in FY 2014.  This decrease should come as no surprise to anyone as the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) required these reductions.  The thinking was that  DHS payment should decrease because as more and more individuals obtain health insurance coverage or are enrolled in an expanded Medicaid, there will be fewer and fewer people who will not be able to pay or have their hospital bills paid for them.  And this has been found to be just the case as the Office of the Assistant Secretary for Planning and Evaluation reported that uncompensated care was reduced by $5.7 billion in 2014.   The great majority of this reduction though came in states that had expanded Medicaid eligibility, putting hospitals in states that did not expand Medicaid eligibility in a particularly difficult spot; they will be receiving less in DSH payments, but the amount of uncompensated care is not decreasing.

DSH Payments

DSH payments began in the 1980s as a way to provide more money to hospitals that serve a poorer population of people who cannot afford to pay or have some other entity like insurance or a public health program pay for their hospital bills. Section 3133 of the ACA dramatically changed how DSH payments would be calculated.  All hospitals would receive 25 percent of what they would have received under the pre-ACA system.  The remaining amount would come from a pool of money the amount of which is calculated based on the change in the percentage of uninsured from the current year to the year just prior to the year the ACA was signed.  As the number of uninsured decreased so would the amount available to hospitals in their DSH payments. For FY 2014 CMS calculated that the percentage of uninsured declined from 18 percent during the year prior to the ACA’s adoption to 16 percent.  For FY 2015 CMS has calculated that the percentage of uninsured is 13.75 percent of the population.

Available Amount

These two reductions have resulted in a corresponding reductions in the amount available for uncompensated care payments, or the portion of the DSH payment not equaling 25 percent of what the DSH payment would have been if the changes in the ACA were no adopted.  For FY 2015 the amount of money for uncompensated care payments is $7.6 billion which is down from $9.033 billion in FY 2014.  CMS estimated in the Final rule updating the hospital inpatient prospective payment system (IPPS) for FY 2015 that hospitals would see approximately a 1.3 percent reduction in the amount of their DSH payments from FY 2014.

The percentage is less than one would expect because during this time period the amount available for the original 25 percent has increased from year to year somewhat offsetting the decrease in uncompensated care payments. This increase is primarily due to the increase in the number of Medicaid recipient due to the expansion of Medicaid, but it also is attributable to just an overall increase in the payment amount over time.  In FY 2014 $3.193 billion was avialable to pay the pre-ACA amount and in the FY 2015 this amount was increased to $3.345 billion. The number of Medicaid patients a hospital treats is used to determine the amount of the hospital pre-ACA DSH payment.

Uncompensated Care

An increase in the amount of Medicaid patients has resulted in a significant decrease in the cost of uncompensated care by hospitals.  HHS is reporting that FY 2014 hospitals incurred $5.7 billion less in uncompensated care costs due to an increase in the number of patients that are now covered by an expanded Medicaid.

This decrease in uncompensated care costs did not occur in states that did not expand Medicaid eligibility. Hospitals in those states find themselves in a difficult situation as they are receiving less DSH payments, but are not seeing an increase in revenue from patients with Medicaid or private insurance coverage.  Many of these hospitals rely heavily on DSH payments and decreases in the amount  of money they receive could have dire consequences for these institutions and the people they serve

State Ballot Initiatives Put Health Law in the Ballot Box

On Election Day, November 4, 2014, several states took to ballot initiatives as a way to decide health law issues. Some of the initiatives focused on issues like regulation of health insurance premiums, personhood, the legalization of marijuana, and genetically modified organisms (GMOs). While many of the initiatives had comparable counterparts in several states, some, like California’s Proposition 45, to regulate health insurance premiums, were unique to one state’s ballot.

Personhood

Anti-abortion advocates took a step backward in their personhood movement when midterm election results showed that North Dakota and California voters rejected state constitutional initiatives to grant constitutional rights to the unborn. According to a Politico report, the North Dakota initiative, which was thought to have been personhood advocates’ best hope for success this midterm, would have amended the state constitution to say, “inalienable right to life of every human being at any stage of development must be recognized and protected.” According to an AP article, the initiative was losing by a 2 to 1 margin with 91 percent of the state’s precincts reporting. The AP also reported that Colorado, which had already rejected personhood in 2008 and 2010, rejected another personhood amendment with overwhelming opposition that would have granted constitutional rights to the unborn under the state’s criminal code.

Premium Regulation

Proposition 45 was placed on California ballots in the hopes of regulating unnecessary hikes in health insurance premiums. According to an LA Times report, the initiative, which did not pass, would have granted California’s elected insurance commissioner the power to review health insurance rates in the individual and small employer marketplaces. Proponents of the initiative, which included a consumer advocacy group, the trial lawyers association, and the state’s Democratic Party, argued that the initiative was a necessary means to keep health insurance costs at reasonable levels. Opponents of the initiative, including health insurers, doctors, and hospitals, contended through a $57 million opposition campaign that the regulation would interfere with California’s Health Insurance Exchange.

Experimental Drugs

Arizona voters approved an initiative that will allow terminally ill patients to try unapproved experimental drugs, according to an AP report. The so-called “Right to Try Act” will allow certain terminally ill patients who do not have other treatment options to try drugs that have completed phase one of a clinical trial but have not received full approval from the FDA.

Medical Malpractice

California’s Proposition 46 would have raised the state’s damage cap for pain and suffering from $250,000 to about $1.1 million, to account for inflation since the cap was implemented in 1975. The proposition, which failed, also would have required physicians to undergo random drug testing. According to an LA Times report, if the initiative had been successful, physicians would have been required to consult a state database regarding patients’ prescription habits before prescribing certain medication in order to help combat drug abuse.

GMOs

According to a Honolulu Civil Beat report, in Maui County, voters passed a ballot initiative to temporarily ban genetically engineered crops in what was Hawaii’s most expensive campaign in history. The measure, which targeted the seeding practices of global agricultural companies Monsanto and Dow AgroSciences, resulted in an $8 million opposition campaign. Although opponents outspent anti-GMO advocates 87 to 1, Hawaii residents succeeded in voting their concerns and desire to have GMOs banned until the county can analyze the impact of GMOs on the county’s health and environment. The initiative is a dramatic measure because it will put a near standstill to the farming of Monsanto and Dow AgroSciences, who operate significant farming facilities in Maui County.

According to a report from the Oregonian, a similar contest took place in Oregon over Measure 92, which would have required mandatory labeling for products containing GMO’s.  Entities like Monsanto, PepsiCo, Mead Johnson, and Dow AgroSciences raised more than $20 million to defeat the initiative. Proponents, who only raised $8 million, were unsuccessful by a narrow margin, with only 51 percent of voters in opposition. Colorado voters made a similar decision, according to an LA Times report, with an even larger majority rejecting a grass roots initiative to require labeling which identified GMOs in food.

Marijuana

According to a report from the AP, ballot initiatives in Oregon and the nation’s capital were successful in the movement towards widespread legalization of marijuana. In Oregon, the success of the initiative legalized the sale, manufacture, and possession of marijuana for people over the age of 21. In the District of Columbia, the law is somewhat scaled back and permits people over the age of 21 to possess and grow small amounts of marijuana for personal use; however, individuals are not yet authorized to sell marijuana. According to an AP article, marijuana advocates were not successful in Florida, where only 57 percent of the electorate signed on for the initiative that required 60 percent to pass. According to an Alaska Dispatch News article, an initiative to legalize marijuana was successful in Alaska and will take effect 90 days after the election is certified.

MA Plans Could Not Drop Physicians Without Cause Under Proposed Legislation

Rep. Rosa DeLauro (D-Conn.) and Senator Richard Blumenthal (D-Conn.) discussed the importance of legislation that they introduced that would prohibit Medicare Advantage plans from dropping physicians, providers, and other suppliers from the their networks with little or no notice to Medicare beneficiaries during a conference call sponsored by Medicare advocacy groups. The Medicare Advantage Participants Bill of Rights Act puts in place numerous requirements an MA plan would need to meet before it could remove a physician, provider or other supplier from its network.

Cause

Under the legislation a physician, provider, or other supplier could only be dropped from the MA’s network for cause. The MA plan has cause to remove a provider of service if the HHS Secretary determines that the physician, provider or other type of supplier is (1) medically negligent; (2) in violation of any contractual requirement with the MA plan; or (3) is otherwise unfit to furnish items or services. In addition to meeting the definition of cause, an MA plan would have to have the HHS Secretary determine that cause exists before the physician, provider or other supplier could be dropped from its network. The legislation requires the Secretary to establish an appeal process for providers who are removed from an MA’s network.

Notice

The legislation also requires that notice be given to beneficiaries enrolled in the MA plan 60 days prior to the date on which the MA plan will no longer cover services from a physician, provider, or other supplier. The notice is to include (1) the last date of coverage for services from the physician, provider or other supplier; (2) the name and telephone number of other physicians, providers or other suppliers in the MA’s network who offer the same services and supplies as the physician, provider or supplier who is no longer in the MA’s network; and (3) a customer service telephone number. In addition, the legislation would require MA plans to establish their networks 60 days before the beginning of the annual open enrollment period and to include that information in their annual bid and on their website.

Need

“This landmark legislative proposal was inspired by the thousands of patients who need a bill of rights to protect them against bait and switch abuses like United Health Care used last year when they dropped hundreds of doctors from their Medicare Advantage networks in Connecticut,” said Senator Blumenthal during a conference call on the legislation sponsored by The Medicare Rights Center and The Center for Medicare Advocacy. “When UnitedHealth dropped an unprecedented number of providers right at the beginning of last year’s Medicare open enrollment period, the stories from seniors in my district were staggering,” said Representative DeLauro. “People were not only worried about their physical health, but had to deal with the mental strain and stress of not knowing whether they were going to have their doctors,” she said.

Status

The Medicare Rights Center reported that 10,000 individuals signed a petition urging Congress to support the bill and enact legal protections to maintain doctor-patient relationships. The legislation was introduced in both the House of Representatives and the Senate on June 26, 2014. It was referred to the Ways and Means and the Energy Committees in the House and to the Finance Committee in the Senate. The legislation has not yet received a hearing in any of the committees.

Highlight on Georgia: Residents Favor Medicaid Expansion, Still Oppose ACA

Although certain implementation of the Patient Protection and Affordable Care Act (ACA) has been set in motion over the past year, a survey undertaken by the Healthcare Georgia Foundation observed Georgia residents’ division of support for the ACA with 42 percent approving and 46 percent disapproving of it. The survey of 400 adults also found that more than 70 percent of Georgia residents believe that there has been no difference in their access to health care and quality of services over the past year, which saw the full rollout of the ACA. Generally, the Georgia residents’ disapproval of the ACA stemmed from the key provision related to penalties for not purchasing health insurance. Conversely, there was noted support for the ACA’s prohibition of health insurers denying individuals coverage for pre-existing health conditions and the requirement for insurers to cover some preventative care services at no cost to the patient.

Regarding ACA implementation, the state of Georgia made two key policy determinations: (1) no to expansion of Medicaid and (2) no to offering a state marketplace for health insurance. The survey found that 90 percent of Georgia residents believe that Medicaid was important for healthcare in Georgia, with 75 percent finding that Medicaid was very important. Not surprisingly then, 60 percent of surveyed Georgia residents expressed their disapproval of the state’s decision not to expand Medicaid. In contrast, Georgia residents were evenly split on the state’s decision not to  offer a state marketplace for insurance, with 44 percent approving and 44 percent disapproving.

In August, Gallup reported that states with the largest declines in uninsured rates from 2013 to mid-year 2014 expanded Medicaid and established a state-based marketplace exchange or federal partnership. These states reduced their uninsured rates three times more than states that did not implement these mechanisms. For instance, the state with the largest reduction, Arkansas, saw a 10.1 percent decline in its number of uninsured residents, from 22.5 percent to 12.4 percent. In contrast, Georgia saw its uninsured percentage only drop 2.2 percent from 22.4 percent to 20.2 percent.

However, Georgia is unlikely to take up Medicaid expansion in the foreseeable future.  Georgia lawmakers did not expand Medicaid during the 2014 legislative session, instead passing legislation (HB 990) that prohibited Medicaid expansion without prior legislative approval. The governor and other state officials opposed to Medicaid expansion cite added costs to the state, with estimates of more than $2 billion over 10 years.

The Georgia Budget and Policy Institute (GBPI), factoring in new state revenues that the expansion would trigger, puts the figure much lower, at an estimated net expansion cost of about $350 million over the same time frame. In September, the GBPI had argued that almost 50,000 uninsured Georgia residents in a 10-county region could get guaranteed health coverage if the state accepted new federal money to expand Medicaid eligibility. The number of uninsured residents covered would be the third largest number of residents in any of Georgia’s 12 state-designated regions. Without Medicaid expansion, many uninsured Georgia residents with income below the federal poverty level will remain stuck in a coverage gap, according to the GBPI, as their income is above Georgia’s current Medicaid threshold, yet too low to qualify for new federal insurance subsidies. The institute noted that throughout the state, more than 400,000 uninsured adult residents fell into the coverage gap.

Georgia’s decision not to expand Medicaid has played a role in how residents access healthcare services. Forty-two percent of respondents in the Healthcare Georgia Foundation survey reported that they wanted to seek care for a health-related issue, but chose not to for some reason, including cost, distance to doctor’s office or time spent. Cost was cited as a major reason by 68 percent of these respondents. In part, this focus on cost not surprisingly results in the survey finding a majority of residents favoring Medicaid expansion.