CHIP and DSHs face difficult financial roads without quick congressional move

Without congressional action, authorization for the Children’s Health Insurance Program will end on September 30, 2017, with the end of fiscal year (FY) 2017. Cuts to disproportionate share hospital (DSH) payments are also scheduled to take effect on October 1, 2017. If the authorization lapses and the cuts take effect, states will face budget shortages in their attempts to keep the CHIP program solvent and DSHs, which already operate on tight budgets, will be exposed to greater financial strain. A number of other health care related provisions are also slated to lapse on September 30, 2017, if Congress does not act, according to a Congressional Research Service (CSR) report.

Action

On September 28, 2017, the Energy and Commerce Committee announced that it would markup a bill to extend funding to the CHIP program. On the same day, members of Congress authored a letter to House Speaker Paul Ryan (R-Wis) and Democratic Leader Nancy Pelosi (D-Calif) expressing concerns regarding the impact of the DSH cuts and calling for congressional action.

DSH cuts

Stakeholders have made ongoing attempts to procure action from Congress to delay the DSH cuts. On September 18, nine hospital organizations urged lawmakers to further delay the start of Medicaid DSH cuts authorized by Section 2551 of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) (see Hospital organizations again advocate for delay of Medicaid DSH reductions, September 19, 2017). The cuts would have gone into effect in 2014 but legislation delayed the reduction. The reduced payments were designed to account for decreases in uncompensated care, yet, DSHs warn that planned increases in coverage rates under the ACA have not been realized, exposing providers to unfair payment reductions.

CHIP

Although the impact of a delay in CHIP reauthorization will differ from state to state, a Kaiser Family Foundation analysis revealed that “states would face budget pressures, children would lose coverage, and implementation of program changes could result in increased costs and administrative burden for states” if Congress does not reauthorize the CHIP program by the end of FY 2017 (see States face budget shortages if Congress doesn’t extend CHIP funding, September 11, 2017).

Hospital organizations again advocate for delay of Medicaid DSH reductions

Nine hospital organizations have urged Congress to further delay the start of Medicaid disproportionate share hospital (DSH) cuts, which are set to begin in fiscal year (FY) 2018. The organizations, including the American Hospital Association (AHA), wrote letters to both the House and the Senate.

State Medicaid programs make DSH payments to qualifying that serve a large number of Medicaid and uninsured patients. Section 2551 of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) would have reduced federal DSH allotments beginning in 2014 to account for the decrease in uncompensated care anticipated under health insurance coverage expansion. Legislation has since delayed the Medicaid DSH reduction; most recently, the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) (P.L. 114-10) delayed the reductions until FY 2018 through FY 2025 (see Soc. Sec. Act Sec. 1923(f)).

The organizations contended, however, that “the coverage rates envisioned under the ACA have not been fully realized,” and many Americans remain uninsured. In addition, Medicaid underpayment poses an ongoing financial challenge for hospitals.

In July 2017 CMS issued a Proposed rule (82 FR 35155, July 28, 2017) that would implement the annual DSH allotment reductions using a DSH health reform methodology (see CMS proposes updated method to calculate ACA-mandated Medicaid allotment reductions, Health Law Daily, August 2, 2017). Commenting on the Proposed rule, the AHA advocated for the repeal of the ACA Medicaid DSH allotment reductions and requested that CMS delay the implementation of the FY 2018 DSH allotment reductions (see AHA raises concerns about proposed reductions in DSH allotments, Health Law Daily, August 30, 2017).

Uncompensated hospital care falls in Medicaid expansion states, but hospitals still worry

Medicaid expansion and other changes related to Medicaid payments are very important to the financial viability of hospitals. For example, according to a Kaiser Family Foundation (KFF) analysis, the expansion of Medicaid coverage under section 2001 of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) helped hospitals by producing a nationwide decline in uncompensated care from $34.9 billion in 2013 to $28.9 billion in 2014, the year the expansion took place. At the same time, however, KFF found that despite the financial gains from declining uncompensated care, hospitals fear that these gains may be offset by a higher volume of Medicaid payments that may be lower than the actual hospital costs.

The KFF analysis confirms that most of the reduction in uncompensated care occurred in Medicaid expansion states. Specifically, in expansion states uncompensated care declined from $16.7 billion in 2013, to $11 billion in 2014, a 35 percent reduction. In non-expansion states, uncompensated care dropped from $18.1 billion in 2013, to $17.9 billion in 2014, a reduction of less than one percent.

KFF points out that the federal disproportionate share hospital (DSH) allotments, totaling $11.7 billion in 2014, will drop by $2 billion in fiscal year (FY) 2018 and by a total of $43 billion between FY’s 2018 and 2025. As a result, KFF’s survey of hospitals and their associations found a growing concern that the increase in revenue from Medicaid expansion will not fully offset the reduction in federal Medicaid DSH payments.

KFF notes that the coming reduction in DSH payments may affect safety net hospitals, in particular, due to their (1) high dependence on Medicaid DSH funds, (2) high numbers of uninsured patients, (2) few privately-insured or Medicare patients, and (4) generally weaker financial condition.

In addition to the effect of reduced DSH payments, KFF warns that hospitals may also be hurt if CMS limits Medicaid supplemental payments to hospitals in the future. This is because many hospitals rely on supplemental payments to increase payments above their actual costs. KFF believes that the impact of reductions in supplemental payments will ultimately depend on whether states will offset reductions with increases to their Medicaid base rates paid to hospitals.