Currently, Medicaid DSH [Disproportionate Share Hospital program] disburses $11.5 billion annually to the states, which have considerable latitude in allocating these funds. Some states carefully target their DSH payments to hospitals providing large volumes of uncompensated care, but others, such as Ohio and Georgia, spread their payments broadly, transforming the program into a de facto subsidy of their hospital industry. […]
To allow time for coverage expansion to take effect, the [ACA’s DSH] cuts are back-loaded — starting at $500 million (4% of current national DSH spending) in 2014 but reaching $5.6 billion (49% of current spending) in 2019. […]
Recently, the Centers for Medicare and Medicaid Services (CMS) issued a proposed rule allocating reductions in DSH payments across states for the first 2 years, on the basis of three equally weighted factors: the percentage of uninsured people in the state, how well the state targets its DSH payments to hospitals with high percentages of Medicaid inpatients, and how well it targets DSH payments to hospitals with high levels of uncompensated care. If the rule is adopted as written, states with lower percentages of uninsured citizens will receive steeper cuts, but the biggest reductions will hit states that don’t target DSH payments to hospitals providing large amounts of Medicaid and uncompensated care. […]
Texas faces one of the biggest proposed reductions in its baseline DSH allocation (–5.5%, a cut of $56.1 million) because it broadly allocates DSH funds to hospitals that provide little uncompensated care. In contrast, California targets its DSH money to only 4% of its hospitals and will therefore receive a much smaller proportionate reduction of 2.8% (a cut of $32.6 million).
(DSH cuts for all states are listed in a supplementary appendix.)
If properly enforced, the proposed rule will help sustain the safety net. But if the state governments that refused to expand Medicaid also refuse to rethink their approach to allocating DSH funds, there will be little money left to sustain their safety-net hospitals when the cuts deepen in 2017. The cascade of service reductions and facility closures that this could trigger would have sweeping consequences. Safeguarding the safety net in such politically perilous times will require creative rulemaking by CMS. The proposed DSH rule is a good start, but much remains to be done.