AHA raises concerns about proposed reductions in DSH allotments

The American Hospital Association (AHA) is urging CMS to delay the implementation of the fiscal year (FY) 2018 disproportionate share hospital (DSH) allotment reductions due to significant concerns about the data the agency proposed to use in the DSH Health Reform Methodology (DHRM), according to a letter sent to CMS Administrator Seema Verma. In addition, the AHA is continuing to advocate for the repeal of the Medicaid DSH reductions in the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148). The AHA noted that although Congress cut DSH payments based on its reasoning that hospitals would care for fewer uninsured patients as health care coverage expanded, the projected increase in coverage has not been fully realized. This is because some states chose not to expand Medicaid and there is lower-than-anticipated enrollment in health insurance coverage through the health insurance marketplace.

AHA raised two key issues within the Proposed rule: (1) the data sources used in the DHRM, with a focus on transparency, completeness, and timelines of the data; and (2) the proposed cap that would limit the reductions to only 90 percent of a state’s DSH allotment.

Background

Section 2551 of the ACA established that state Medicaid DSH allotments would be reduced annually in the aggregate in consideration of certain statutory factors. In 2013, CMS published a Final rule that finalized a methodology only for fiscal years (FY) 2014 and 2015 in anticipation of re-evaluation following implementation of the ACA (see CMS lays out methodology for Medicaid DSH reductions in 2014 and 2015, September 16, 2013).

Proposed rule

The Proposed rule reflects a DHRM that accounts for relevant data that was unavailable to CMS during prior rulemaking for DSH allotment reductions originally set to take place for FY 2014 and FY 2015 (see CMS proposes updated method to calculate ACA-mandated Medicaid allotment reductions, Health Law Daily, July. 28, 2017).

Data sources

According to the AHA,CMS plans to use its FY 2017 Medicaid DSH allotment determination, Medicaid Inpatient Utilization Rate (MIUR) data reported by states, and Medicaid DSH audit data reported by the states for state plan rate year 2013. AHA claims that because none of the listed sources are publicly available CMS cannot deliver on its intent to use transparent and readily available data. In addition, CMS has not provided states or stakeholders with the technical guidance on the calculations and data sources to be used as it indicated it would provide in its 2013 Final rule. AHA stressed that having accurate MIUR data is critical to ensuring states are treated equitably under the proposed formula and the delay in the data is a significant limitation to the accuracy of the methodology. The FY 2017 allotments are not expected to be made public until after the start of FY 2018, a further delay of information.

DSH allotment reduction cap

The AHA supports CMS’ proposal to cap DSH allotment reductions at 90 percent of a state’s allotment. The proposal would prevent any state from losing it entire DSH allotment and, therefore could receive an allotment after FY 2025, AHA said. However, AHA suggested that CMS consider a lower cap for the DSH allotment reductions because the number of states affected is likely to be small.

Insurance antitrust exemption reform clears House

The House passed on March 22, 2017, H.R. 372, The Competitive Health Insurance Reform Act of 2017, with a bipartisan vote of 416 to 7. The Act repeals in part the McCarran-Ferguson Act antitrust exemption for insurers, including price fixing, bid rigging, and market allocation, and retains the exemption for certain collaborative activities. A CBO report projected that the Act would have no significant net effect on the premiums that private insurers would charge for health or dental insurance and that any effect on federal revenue would be negligible.

The report noted that health insurance premiums could be lower to the extent that enacting the bill would prevent insurers from engaging in practices currently exempted from antitrust law. On the other hand, insurers could become subject to additional litigation and thus their costs and premiums might increase. The CBO estimated that both of those effects would be small.

The American Hospital Association had expressed concerns about the abuse of market power by large commercial insurers with the Departments of Justice and Health and Human Services previously.

Is the American Health Care Act a ‘critical first step’ or unsupportable?

HHS Secretary Tom Price, M.D., supports the reconciliation recommendations known as the American Health Care Act, and considers the changes a necessary and important first step in further reforming the U.S. health care system. In a letter to the chairs of the House Committees on Energy & Commerce and Ways & Means, Price explained that in his view, the proposed legislation aligns with President Donald Trump’s promise to repeal and replace the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148). Two major industry groups, however, said that they could not support the current version of the bills.

American Health Care Act 

On March 6, 2017, House Speaker Paul Ryan announced the American Health Care Act, consisting of two committee “budget reconciliation legislative recommendations,” which would be passed under the provisions of S. Con. Res. 3, a resolution which developed a streamlined process for Congress to pass health reform without threat of Senate filibuster. The document from the Ways & Means Committee would alter many of the ACA’s tax provisions, including eliminating penalties related to the individual and employer mandates, while the Energy & Commerce Committee’s document focuses on changes to the Medicaid program (see Republicans present health reform that is neither repeal nor replacement, March 7, 2017). Both committees began markup on the bills less than two days after the documents were made public.

First step in Administration’s plan

According to Price, the reconciliation legislation is just the first of three planned steps in undoing the ACA’s reforms. The reconciliation process can only be used to change some ACA provisions, though not all, and also cannot be used for all of the Trump Administration’s planned reforms. To complete those changes, HHS has two more planned steps; first, taking administrative actions to provide patients with additional options and give states more flexibility in Medicaid spending, and second, to support legislation on Trump’s other priorities including sale of insurance across state lines and medical tort reform. HHS noted that the Administration has already begun work on the second step, including Trump’s Executive Order on minimizing the economic burden of the ACA (see Trump Administration previews health care plans with Executive Order, regulatory freeze, January 23, 2017) and a Proposed rule designed to stabilize the health insurance marketplace by altering enrollment periods and other rules.

AHA and AMA opposition

Two major stakeholders in the health reform debate are the American Hospital Association (AHA) and American Medical Association (AMA), both of which released statements saying that, as currently written, neither organization could support the American Health Care Act. AHA President and CEO Richard J. Pollack wrote a letter on behalf of the hospitals, health systems, health organizations, and clinician partners associated with the group, and first raised concerns about the lack of coverage estimates from the Congressional Budget Office (CBO) and asked that Congress wait until an estimate is available before proceeding with formal consideration of the Act. The letter also listed the AHA’s policy concerns, including the restructuring of Medicaid—which “already pays providers significantly less than the cost of providing care—and the elimination of funding sources while continuing the ACA”s reductions in hospital payments.

Similarly, AMA President Andrew W. Gurman, M.D., wrote that the Act would reverse the ACA’s coverage gains, with millions of Americans losing coverage, and insisted on the involvement of physicians in the health reform debate. AMA Vice President and CEO James L. Madara, M.D., wrote a letter to the Committee Chairs and Ranking Members in which he said the organization cannot support the Act as drafted “because of the expected decline in health insurance coverage and the potential harm it would cause to vulnerable patient populations.” He noted concerns that rolling back the ACA’s Medicaid expansion would limit state flexibility and urged the Committees to “do all that is possible” to prevent individuals who currently have health insurance from losing that coverage.

AHA, hospital executive support for hospital mergers, despite antitrust concerns

Hospital mergers have reduced annual operating expenses at acquired hospitals, and evidence from a study cited by the American Hospital Association shows quality and service improvements stemming from mergers. According to Charles River Associates, despite antitrust concerns from the Federal Trade Commission (FTC), hospital leaders believe that mergers are a better tool for achieving better care coordination and population health management than looser affiliations between parties.

Cost savings

An analysis of non-federal short-term acute care hospital mergers between 2009 and 2014 revealed a 2.5 percent reduction in operating expense per admission at the acquired hospitals, implying annual savings of about $5.8 million (derived from average annual operating expenses). Net patient revenue per admission also declined relative to non-merging hospitals, suggesting that mergers may reduce health care costs.

Interviews with hospital executives placed savings into three categories: scale-related savings from allocating fixed costs over a larger volume of patients, reductions in cost of capital, and standardized clinical processes. In particular, supply chain savings from group purchasing and reduced overhead following consolidation of back office services were cited as important cost-saving benefits of merging.

Quality improvement 

While the study was able to quantify some cost savings related to mergers, positive effects on quality were less obvious, despite executives stressing the impact of quality improvements following clinical standardization after a merger. Small improvements were observed in a decrease in the composite indices of 30-day readmission rates, 30-day mortality rates, and overall outcome, but the only statistically significant result was a 10 percent change in the readmission rate result. The authors admitted that the modest results may partially stem from difficulty in quantifying hospital quality.

Merger specificity

The FTC asserts that improved care coordination and other benefits touted by merger supporters are not merger-specific and can be achieved through other means of association. Hospital leaders disagree based on experience showing that “looser affiliations” between parties fail to provide the necessary level of commitment and accountability to achieve the necessary cost savings and quality benefits to effectuate health reform. The interviewees opined that alliances between parties are not able to overcome the divide of being part of different systems, resulting in unwillingness to invest capital, reluctance to share intellectual property, inability to align incentives and create a common culture, and regulatory roadblocks on information sharing. The authors noted that successful loose affiliations are usually narrow in scope, limiting the cooperation to combining supply chain efforts or developing joint back office function collaborations (without sharing data between affiliates). If clinical areas are involved, they are usually limited to support services.