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).

Over 500 hospitals reach DSH payment settlement with CMS

Resolving 11 pieces of litigation stretching back to 2010, over 500 hospitals on July 14, 2016, entered into confidential settlement agreements with CMS regarding Medicare disproportionate share hospital (DSH) payments. Details of the settlements were not available at press time, although they involve disputed DSH payments for cost reporting periods from 1991 through 2007, depending on the hospital. Neither CMS nor the attorneys at Akin Gump, lead counsel for the hospitals involved in the settlements, would comment on the settlements.

Background

Medicare makes DSH payments as a percentage add-on to the standard payment amount per discharge under the prospective payment system for the operating costs of inpatient hospital services. The fact situations for the hospitals involved in the settlement were similar – the hospitals challenged CMS’ payment determinations on the grounds that errors and omissions in the calculation of the DSH payment formula wrongfully reduced the resulting DSH payments. The hospitals also challenged a subsequent ruling by CMS – CMS-1498-R – that the Provider Reimbursement Review Board and the other Medicare administrative appeals tribunals lack jurisdiction over provider appeals of specific DSH payment adjustment issues.

Treatment of Part C days

The hospital parties in four cases also filed a motion to stay further proceedings pending a final, non-appealable merits decision in either Allina Health Services, et al. v. Burwell, 1:14-cv-01415-GK (D.D.C.) (see Court has jurisdiction to hear health system’s challenge to DSH calculation, Health Law Daily, November 2, 2015) or Allina Health System, et al. v. Burwell, 1:16-cv-00150-GK (D.D.C.). The substantive issue in dispute in those cases concerns the treatment of Medicare Part C days in the Medicare DSH payment calculation for periods after October 1, 2004.

Original complaints and stipulations

Listed below are the complaints for the 11 cases that were settled, along with the number of hospitals involved in each complaint and the cost years involved on the original complaints, followed by a link to the July 14, 2016 stipulation.