The Medicaid and Children's Health Insurance Program Payment and Access Commission voted Thursday to recommend staggering reductions in payments to disproportionate share hospitals and changing the current methodology for allocating spending.
MACPAC approved of the measures 16-1 and plans to recommend them to Congress in the federal Medicaid advisory committee's annual report later this year. The changes are projected to save the government anywhere from $1 billion to $5 billion over the next decade.
The $12 billion allocated in Medicare for disproportionate share payments is meant to offset the financial pressure on hospitals that serve larger populations of low-income patients. The current formula hasn't been tweaked since 1992.
Policymakers have been concerned about the accuracy of calculating DSH and how the payments are targeted to certain states and certain types of hospitals.
The Affordable Care Act legislated DSH cuts because Medicaid expansion was supposed to cover more Americans, which would sharply lower hospitals' uncompensated care costs and give their margins some relief.
Congress delayed the cuts before they were slated to start in 2014, and they've been procrastinating on them ever since. In an early 2018 spending bill, lawmakers authorized a one-year delay — and hospitals are bumping up against that deadline.
Congress has until Sept. 30 to decide what, if anything, to do about the DSH program. The cuts are slated to start in October, the start of federal fiscal year 2020.
Under current law, DSH payments are expected to be cut by $4 billion then and $8 billion a year through FY 2021-2025. MACPAC, however, recommends phasing in the cuts more gradually: $2 billion in FY 2020, $4 billion in FY 2021, $6 billion in FY 2022 and $8 billion a year in FY 2023-2029.
That measure received strong support from MACPAC, with multiple members voicing their approval of the suggestion, which should mitigate disruption for DSH hospitals and allow states some breathing room for adjusting other Medicaid hospital payment policies.
The second prong of MACPAC's proposal is meant to minimize the amount of reductions in DSH funds currently being paid out to providers. As the reductions are being phased in, they would first affect the states that, historically, have been receiving more federal funds than they've been spending in the program.
In FY 2016, $1.2 billion in federal DSH allotments were unspent, MACPAC analyst Robert Nelb said. So this section of the recommendation would go far in trimming the fat.
However, another draft recommendation around the calculus of allocation proved a sticking point with one member of the advisory committee. The third draft recommendation suggests HHS tie DSH payments to the number of non-elderly, low-income individuals in a state, instead of the uninsured population.
Commissioner Darin Gordon, the one dissenting vote not to recommend the measures, didn't support this idea, citing his preference for the rebasing factor being tied to the number of uninsured people in the state.
"I do believe the uninsured rate, which does have a strong correlation to uncompensated care, I think that is something that is fundamental," he said at Thursday's meeting.
Gordon's rationale was that in the aggregate, non-expansion states would do worse under the third draft recommendation than under current law.
This concern, of potential spillover effects for states that expanded Medicaid from the policy choices of states that elected not to following 2012's Supreme Court decision, resonated with the committee.
"In a program by statute defined to have a limited pool [of money], the moment you say we’re only going to look at that state's decisions, you have a negative effect on others," commissioner Alan Weil said.
The American Hospital Association and America's Essential Hospitals both sent representatives to MACPAC's meeting voicing their wariness of changes to the DSH program and to advocate against the ACA Medicaid DSH allotment reductions altogether.
"This crucial funding stream will essentially be gutted," said AEH senior policy analyst Zina Gontscharow, who also noted the funding stream as is doesn't cover all uncompensated care costs hospitals take on.
AHA continues to urge Congress to push back the cuts until more Americans are insured, executive VP Thomas Nickels wrote in a letter to MACPAC. He also voiced his concern over the proposed restructuring of the allotment methodology, alleging it could end up shifting larger sums of money around than the reduction alone.
Squabbling over DSH is all the rage right now — the nation's highest court has even gotten involved. Oral arguments began in the U.S. Supreme Court earlier this month in a case over whether CMS needed stakeholder comment before changing the formula used to calculate DSH payments.
And in December, Florida Republican Sen. Marco Rubio proposed tweaking the funding formula so a state's allotment is tied to its population of adults below the poverty level.
There's huge variation in DSH payments depending on where you are in the country. Florida, under current law, receives one of the lowest allotments.
States that receive the lion's share of DSH funding will face the biggest cuts if they go into effect, including Alabama, New York and South Carolina.