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).

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.

CMS grants New Hampshire Medicaid funding compliance extension

CMS has clarified that New Hampshire’s Medicaid expansion may end next year, but the current program can continue until the end of 2018. CMS stated that New Hampshire’s use of voluntary donations from health care providers and hospitals in the New Hampshire Health Protection Fund fails to comply with the federal requirements. CMS raised the possibility that federal funds may be withheld which would have resulted in a termination of the program.

The Medicaid statute in Section 1903(w) of the Soc. Sec. Act and implementing regulations at 42 CFR Sec. 433.54 and 433.66 establish a prohibition on provider-related donations, except in very limited circumstances. In a letter to New Hampshire officials, CMS indicated that there is a relationship between the donations and Medicaid payments, because Medicaid expansion is conditioned on the receipt of donations as articulated in New Hampshire legislation. The state’s use of voluntary donations from hospitals to supplement federal Medicaid funding violates federal law. The non-federal share financing of the New Hampshire Health Protection Program or Medicaid expansion through the use of provider-related donations to pay for Medicaid service-related costs violates the requirement that a bona fide provider-relation is a donation that has no direct or indirect relationship to Medicaid payments.

The 50,000 New Hampshire residents participating in the Medicaid expansion will not see any change in their coverage through the current re-authorization which continues until the end of 2018.New Hampshire’s next legislative session will need to address compliance with the federal law for the 2019 budget to bring the state’s non-federal share financing into compliance with the existing federal statute and regulations. Otherwise, Medicaid expansion in the state will lose federal funding. Governor Chris Sununu (R) stated that stripping coverage from Medicaid enrollees would have been “grossly unfair,” and will use the transition period to consider future changes.

Wrap-around Medicaid gives states administrative headaches

Medicaid premium assistance, where Medicaid acts as wrap-around coverage for a private health insurance plan, is administratively complex for states and may not work well. In an issue brief, the Kaiser Family Foundation (KFF) considered what is known about wrap-around Medicaid coverage, and looked at financial implications of such a program.

Wrap arounds

According to KFF, states with Medicaid premium assistance programs use Medicaid funds to purchase private coverage for Medicaid beneficiaries. Federal law requires these programs to make the purchased private coverage on par with what the state’s Medicaid program would cover, but private insurance generally covers less than Medicaid and requires more out-of-pocket payments. Therefore, states with these programs must provide supplemental benefits and cost-sharing protections, known as “wrap arounds,” to insure that cost sharing does not exceed Medicaid limits. In general, states with these programs have low enrollment rates, and therefore, there is limited data available to determine how well the programs work.

Administrative complexity

States have found that Medicaid premium assistance programs require a lot of administrative work to determine exemptions, track and manage cost sharing under multiple private plans, and track wrapped covered benefits. The administrative burden led multiple states to discontinue Medicaid premium assistance programs and to merely use their own managed care delivery systems. However, that burden can be minimized. When Arkansas created its Medicaid premium assistance program under the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148), it contracted with a limited number of standardized plans. The standardization made it easier for the state to track and manage the wrap-around payments.

Financing

KFF looked at legislative proposals that would expand wrap-around Medicaid coverage and noted that, in order for such a program to be effective, it would need adequate federal funding, because such programs are required to be cost effective compared with traditional Medicaid coverage. It also noted that, if these programs were done under a waiver program rather than through traditional Medicaid, the funding would be limited in duration and amount, leaving it uncertain whether the program would be able to continue in the future.