Friday, February 1, 2013
Disproportionate share hospital (DSH) payments were established by the federal government to help offset the burden of uncompensated care provided by safety net hospitals, which serve a high number of Medicaid and low-income – often uninsured – individuals. DSH hospitals include public and private hospitals, children’s hospitals, university hospital systems, and long-term mental health care institutions.
DSH payments are made to eligible hospitals through two separate and distinct programs: the Medicaid DSH program (enacted by Congress in 1981) and Medicare DSH adjustment provisions (enacted by Congress in 1986). In fiscal year (FY) 2010, DSH payments to qualifying hospitals totaled $11.6 billion for Medicaid and $10.5 billion for Medicare. No small sums! Although both programs serve as a cost offset for uncompensated care, there are significant differences in how these two programs work.
The Medicaid DSH program was created in 1981 as a joint federal and state program to help states defray costs incurred by acute care hospitals and psychiatric facilities in providing uncompensated care to low-income patients. As part of Medicaid, the federal government reimburses states for a portion of their Medicaid DSH expenditures based on each state’s federal medical assistance percentage (FMAP). Federal Medicaid DSH funding is capped. Each state receives an annual DSH allotment. (For more on how the DSH payments are calculate and allotted, check out Medicaid Program; Disproportionate Share Hospital Allotments and Institutions for Mental Diseases Disproportionate Share Hospital Limits for FYs 2010, 2011, and Preliminary FY 2012 Disproportionate Share Hospital Allotments .)
Medicare DSH payments are made only to acute care hospitals paid under the Medicare prospective payment system for inpatient hospital services. The payments are not based on a set allotment, but are paid to DSH eligible hospitals as an add-on to the standard Diagnosis Related Group (DRG) federal payment rate. Hospitals primarily qualify for Medicare DSH supplemental payments if their DSH patient percentage – defined as the share of Medicare inpatient days that are attributable to Medicare patients eligible for Supplemental Security Income (SSI) – exceeds 15%. Currently, over 3,000 hospitals currently qualify for DSH payment adjustments.
Both DSH programs will see a decrease in funding under The Patient Protection & Affordable Care Act (PPACA) . The Centers for Medicare and Medicaid Services (CMS) Office of the Actuary estimates these reductions at over $36 billion through 2019 –$13.6 billion in Medicaid DSH (27%) and $22.1 billion in Medicare DSH (22%). (see The Estimated Financial Effects of the “Patient Protection and Affordable Care Act .)
Medicare DSH hospitals under PPACA will start at 25% of their estimated Medicare DSH payments. The remaining 75% will go into a pool to be redistributed among DSH hospitals based on the percentage decrease in their number of uninsured and the amount of uncompensated care the DSH hospital provides as compared to all DSH hospitals (see Final Rule: Changes to the Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and FY 2013 Rates ). Final details for making these calculations wait on CMS issuance of the FY 2014 inpatient prospective payment system (IPPS) proposed rule later this spring.
Medicaid DSH payments under PPACA are to be reduced incrementally between FY2014 and FY2020, with the largest reductions targeted at states with low percentages of uninsured and states that don’t direct DSH payments to hospitals with high volumes of Medicaid patients and/or uncompensated care.
|Medicaid DSH Payment Changes Under ACA|
|Year||DSH Reduction ($)||Reduced (%)|
The challenge of reduced DSH payments are a big issue not only for hospital executives, but for the entire health and human service field. The macro picture is that health care dollars are moving from the DSH funds to health plans covering previously uninsured persons. Hospitals will need to “earn” those dollars through contracts with those health plans to remain revenue neutral.
And, although the Supreme Court ruling making Medicaid expansion a state option, it doesn’t change PPACA provisions reducing DSH program payments. So hospitals in states that do not opt to expand their Medicaid programs under PPACA will be caught with DSH reductions without the reduction in the number of uninsured consumers. In addition, some big questions remain for local health systems – particularly, what allowance will be made by the state or CMS when a state opts not to participate in Medicaid expansion and uncompensated care rates remain high while DSH offsets decline? And, how will states distribute reduced Medicaid DSH allotments?
As these new regulations are released, we will keep you posted. In the meantime, look for hospital systems to “reengineer” their services for the uninsured in this new financing environment.
If you have any questions – about DSH or other PPACA regulations, send them to me by email at firstname.lastname@example.org.
Laura L. Morgan,
Market Intelligence Manager, OPEN MINDS
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