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

Highlight on Connecticut: 30,000 Access Health Customers at Risk of Losing Coverage, Subsidies

An estimated 30,000 customers of Connecticut’s Health Insurance Exchange, Access Health CT, could reportedly see a drop in subsidies or even lose coverage in December because they failed to submit required information regarding income and citizenship used to verify their continued eligibility. The Exchange recently implemented the process of verifying eligibility to address discrepancies in information provided during the application process.

Who’s affected?

Those affected by the eligibility verification are Connecticut residents who purchased coverage through Access Health and provided income and citizenship information that the Exchange was not able to verify through either federal or state data sources. Access Health CEO Jim Wadleigh stated that customers affected were sent four letters (in the consumer’s indicated language of preference when their Access Health account was created) asking them to verify the information provided on their applications for coverage.

The Exchange is gearing up to check the information of the 30,000 enrollees against the federal and state data sources in order to determine what discrepancies still exist. For customers who are still missing information will have their coverage cut off or, if income cannot be verified, will have their premium subsidies reduced or eliminated.

Eligibility verification

The Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) allows consumers to receive coverage and financial assistance based on the information provided in their applications. Documentation of such information must be provided within 90 days, after which Exchanges must use information they can obtain from official sources. When the information from federal sources does not match up with the consumer’s application, subsidies and even coverage may be cut off.

For most of the year, however, federal and state Exchanges did not terminate coverage or subsidies for these reasons. Wadleigh said Access Health officials were reluctant to be the first Exchange in the country to terminate coverage for enrollees who were paying their premiums and thus waited for federal guidance on the issue, reported the Hartford Courant.

How Will the Midterm Election Results Affect Medicaid Expansion?

Although the question of Medicaid expansion is resolved in most states, there are a few where the outcome of the gubernatorial elections—and any changes in the composition of the legislature—may extend Medicaid to people currently in the coverage gap, uninsured adults with incomes below the federal poverty level (FPL). It is also possible that the Arkansas “private option” waiver could be in danger, and it would not be replaced by expansion of traditional Medicaid. In Maine, Florida, and Wisconsin, the replacement of a Republican governor with a Democrat may make the difference.

Maine’s Three-Way Contest

Republican Governor Herbert LePage was running for reelection. He has vetoed Medicaid expansion legislation five times. Both Independent Eliot Cutler and Democrat Mike Michaud are running against him, and both support Medicaid expansion.

Maine has a tradition of electing independent candidates. Independent Angus King served as governor from 1995 until 2003. In 2012, he won the U.S. Senate seat formerly held by Olympia Snowe, who retired. In a previous race between Cutler, LePage, and a Democrat in 2010, Cutler came in second, 10,000 votes behind LePage, and the Democrat, third. This year, polls showed Cutler’s candidacy losing support, however.

As of October  28, 2014, polls showed that Michaud and LePage were tied at 40 percent each, with Cutler at 13 percent. Senator King, who had previously endorsed Cutler, switched his support to Michaud. Cutler began to run what he called a “closing ad” on television. He told voters to “vote their conscience,”  and that if they believe he cannot win, they should vote for one of the other candidates. He has refused to withdraw, however, so any votes for Cutler among the 75,000 absentee ballots that already have been cast had to be counted.   As of Wednesday morning, November 5, 2014, with 86 percent of precincts reporting, LePage had 48.35 percent, Michaud had 43.31 percent, and Cutler, 8.34 percent.  Michaud has conceded. Thus, no change is likely.

Wisconsin’s Race

The incumbent, Governor Scott Walker (R), was challenged by Democrat Mary Burke, who supported Medicaid expansion. Walked has opposed it.  In the most recent poll, Walker and Burke were only one percentage point apart, within the 3 percent margin of error. The Republican-controlled legislature has never passed Medicaid expansion as provided in the Patient Protection and Affordable Care Act (P.L. 111-148), however. And because the state Medicaid program operates under a waiver that covers adults with incomes up to 100 percent of FPL, people with incomes too low for coverage through a health insurance exchange are not left out. Adopting the full ACA Medicaid expansion would require a change in the composition of the legislature. Walker having won reelection, no change is expected in Wisconsin.


Like Wisconsin, the Florida legislature has not passed Medicaid expansion. Governor Rick Scott (R) initially opposed it. During the   legislative session, however, he changed his mind and tried to persuade the legislature to pass it. He did not make expansion a high priority, dropping it to concentrate on other issues. Now, his opponent, Charlie Crist (D, but formerly Republican governor), strongly favors expansion. Crist even says he would consider using an executive order to achieve it. Scott has not said much about Medicaid during the campaign, and some sources now describe him as opposing it. Unless the legislative opposition weakens, a Medicaid expansion bill would not pass. Rick Scott won reelection, however, and the composition of the legislature is not expected to changes significantly.

Kansas: Brownback Reelected

Governor Sam Brownback (R) and the Republican-controlled legislature refused even to consider expanding Medicaid, although the proposals were supported by hospitals as well as Democrats. Brownback, too, was up for reelection, and his opponent, Paul Davis (D) supported Medicaid expansion. According to Real Clear Politics, the election was a toss-up. Some recent polls showed Davis ahead, while others showed Brownback leading.  Brownback won, however, with 49 percent of the vote. There also is a possibility for movement in the legislature. The Kansas Health Institute reports that several seats in the legislature are up for grabs, so that it is possible that the Democrats could gain a few more seats. There have been several important votes on which moderate Republicans voted with the Democrats. Some observers believe that ten key races, which are close, will set the balance of power in the Kansas legislature.

Arkansas Private Option Endangered?

Arkansas’ private option waiver, which squeaked through the legislature in both 2013 and 2014, is in the hands of the voters, especially those in a few key Arkansas House districts. In 2014, the reauthorization passed the Senate without a vote to spare. The Arkansas Times reports that in two close races, Democratic incumbents are opposed by candidates with strong Tea Party support. If they lose, it will likely be impossible to find the 75 percent supermajority needed for reauthorization. Results were not yet available as of  the morning of November 5.

CMS Releases Home Health Rate Update for 2015

CMS has issued an advance release of its Final rule to update Medicare’s Home Health Prospective Payment System (HH PPS) payment rates and wage index for calendar year (CY) 2015. The regulations, which will take effect on January 1, 2015, update the national, standardized 60-day episode payment rates, the national per-visit rates, and the non-routine medical supply (NRS) conversion factor under the Medicare prospective payment system for home health agencies (HHAs). The updates represent the second year in a four year rebasing adjustment required by the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148). Among other provisions, the Final rule, which is set to be published in the Federal Register on November 6, 2014, also makes changes to the face-to-face encounter regulatory requirements and home health quality reporting program requirements.


Beginning in 2014, CMS was obligated, under section 3131(a) of the ACA to make adjustments to home health payment rates over a four year phased in period. Under the law, the rate increases over the four year period must be made in equal increments that cannot exceed 3.5 percent of the 2010 payment rates. Through the 2014 HH PPS Final rule (78 FR 72256), which sets the adjustment for 2014 through 2017, CMS finalized a fixed-dollar reduction to the national, standardized 60-day episode payment rate at $80.95 per year. Additionally, the 2014 Final rule adjusted the per-visit payment rates with upward adjustments that ranged from $6.34 for medical social services on the high end to $1.79 for home health aide services on the low end. Additionally, the non-routine medical supply (NRS) conversion factor was set to reduce by a factor of 2.82 percent per year. The 2015 Final rule continues with the adjustments adopted in the 2014 Final rule. Also in accordance with an ACA mandate, taking into account a multifactor productivity adjustment, under the 2015 Final rule, the HH market basket is being updated 2.1 percent (see, Home health rates to be cut by 0.30 percent in CY 2015, July7, 2014).


In addition to making changes related to the ACA requirement, the Final rule discusses how CMS is monitoring the impacts of the rebasing adjustments. The update also includes simplifications to the ACA-mandated face-to-face encounter requirement. In particular, the Final rule eliminates the narrative requirement for certification of eligibility for home health services. Among other implemented rules, the changes establish procedures for obtaining documentation to establish that a patient is eligible for the home health services and demonstrating that a face-to-face encounter with a patient is related to the reason the patient requires home health services.

Other Changes

The Final rule also makes updates to the home health wage index using a 50/50 blend of the existing core-based statistical area (CBSA) designations and the new CBSA designations outlined in a February 28, 2013, Office of Management and Budget (OMB) bulletin. Additionally, changes are made under the Final rule to the quality reporting program for home health providers. Specifically, the quality changes include the establishment of a minimum threshold for submission of Outcome and Assessment Information Set (OASIS) assessments for purposes of quality reporting compliance and the creation of a policy that will assist in the adoption of changes to measures that take place in between rule making cycles.

Costs and Benefits

CMS projects that new requirements associated with certifying patient eligibility for home health services will result in a reduced burden of $21.5 million. However, the overall economic impact of the Final rule is estimated to be $60 million in decreased payments to home health agencies.