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).

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.

Proposed American Health Care Act could have negative financial impact on safety-net hospitals

A study by the Commonwealth Fund suggests that beginning in 2020, safety-net hospitals will see a reduction in revenue and margins as a result of cuts and spending caps by the federal government under the American Health Care Act (AHCA). Although the study believes that safety-net hospitals in rural areas of states that previously expanded Medicare coverage under the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) will be hit the hardest, it suggests that all safety-net hospitals will be affected by this proposed law.

The study reviewed 660 safety-net hospitals (hospitals that receive Medicaid disproportionate share hospital (DSH) payments) to determine the impact of the proposed AHCA. These hospitals provided 30 percent of all uncompensated hospital care in 2015. The ACA had previously allowed states to expand Medicare coverage to individuals under the age of 65 with incomes up to 138 percent of poverty, and the federal government provided enhanced federal funding for these newly eligible Medicare members. Thirty-one states and the District of Columbia had expanded under the law.

Changes

The AHCA would eliminate the enhanced federal matching rate and the individual mandate requirement of the ACA, and beginning on December 31, 2019, the enhanced matching rate would only be given for individuals that had been enrolled by December 31 and have not lapsed coverage for more than a month. A standard federal matching rate would be provided for those enrollees after the cut-off date. Additionally, the AHCA would eliminate the ACA hospital presumptive eligibility benefit which allowed a hospital to enroll low-income patients in Medicaid and receive Medicaid payment for the services provided to these patients up to three months prior their enrollment. The study also noted that the ACHA would impose federal per-capita limits on Medicaid spending. Some changes would not be cuts or caps, such as the restoration of previous DSH cuts made by the ACA to states that did not expand Medicare, and safety net funding to non-expansion states that would supplement payments to safety-net Medicaid providers.

The study assumes that with these changes, the safety-net hospitals will see a decrease in revenue and margins, especially those safety-net hospitals in rural expansion states. It estimates that the elimination of the individual mandate will result in lower Medicaid enrollment and less individuals seeking hospital care due to lack of coverage, and assumes that this would result in revenue reduction for the safety-net hospitals. Additionally, the hospital preventive presumption and retroactive eligibility elimination could cause a loss in Medicaid revenue and hospitals could be subject to rising levels of uncompensated care. The caps on spending would also reduce the revenues and net income because the caps would reduce the federal Medicaid spending and the study assumes that the states will reduce overall spending and reduce provider payment levels. The study does note, however, that safety-net to non-expansion states and the restoration of DSH payments would increase revenues for safety-net hospitals.

The fund believes that although some of the measures may increase the revenue for the safety-net hospitals, the ACHA would overall negatively impact safety-net hospitals, with hospitals located in rural areas most affected. The study suggests that this regulation would cause these hospital margins to drop from 2.9 percent to 0.5 percent by 2026. Safety-net hospitals in states that expanded Medicaid may see uncompensated care costs double by 2016, and hospitals in rural areas of these states which have a high amount of Medicaid payers would be most negatively affected.

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.