Advisory panels to Congress on Medicare and Medicaid are sounding the alarm over hospital payments, with the latter honing in on scheduled reimbursement cuts to hospitals that treat high shares of low-income patients.
Disproportionate share hospital (DSH) cuts have been delayed several times since first scheduled in 2014, but are set to take effect in 2020 beginning with a reduction of $4 billion and increasing to $8 billion by 2025. The Medicaid and CHIP Payment and Access Commission (MACPAC) warned that the magnitude of the loss could create financial instability for some safety-net hospitals.
The rate of uninsured has consistently grown over the past four years, reaching the highest point its been since just after the Affordable Care Act's individual mandate was implemented in 2014, according to a January Gallup poll. When the uninsured rate reached its historical low in 2016, Medicare inpatient payment per case increased 4.6%, while uncompensated care and DSH payments fell $1.1 billion to $9.9 billion, according to the Medicare Payment Advisory Commission (MedPAC).
Increased coverage under the ACA reduced charity care by 8% to $35 billion. Uncompensated care costs for DSH totaled $20 million, a increase of 24% caused by widened disparity between Medicaid payments and costs of services, according to MACPAC, which also submitted its annual report to federal lawmakers Friday.
As both commissions highlight, DSH allotments are designed to offset the high costs of treating acute and uninsured patients. However, states are allowed to make DSH payments to any hospital with a Medicaid inpatient utilization rate of at least 1% — almost half of all hospitals. Major teaching hospitals, which MedPAC says have higher overall Medicare margins than the average inpatient hospitals, receive the largest share of DSH funding.
The DSH cuts are set for Oct. 1. America's Essential Hospitals, the industry group that represents safety-net hospitals, said many hospitals will be unable to provide the level of service their communities are accustomed to.
"We cannot overstate the threat this cut poses to healthcare access and to hospitals that care for low-income and other vulnerable patients," an AEH statement reads. "Growth in Medicaid shortfall — reimbursement that fails to cover cost — has been larger than the projected decline in uncompensated care under the Affordable Care Act. This finding undermines the very premise of the cuts: that ACA coverage expansion would lessen the need for DSH funding."
MACPAC focused on budget-neutral suggestions for restructuring DSH that it says would help some safety-net hospitals avoid financial jeopardy.
MedPAC again proposed CMS consolidate four quality reporting programs: the Hospital Inpatient Quality Reporting Program, the Hospital Readmissions Reduction Program, the Hospital-Acquired Condition Reduction Program and the Hospital Value-Based Purchasing Program.
In June of 2018, MedPAC developed a single payment program, called the Hospital Value Incentive Program (HVIP), that it claims would be patient-centric, focus on population health and encourage coordinated care across providers.
By implementing MedPAC's reporting proposal, the commission says CMS would eliminate two penalty-only programs that are responsible for about $1 billion in penalties incurred by hospitals every year. The commission argues HVIP would not only reduce administrative burden and be easier to administer, but would also put disproportionate share hospitals on a level playing field.
Flaws in Medicare Advantage
While DSH face payment reductions, commercial insurers are reaping the benefits of Medicare Advantage.
MA has been a gold mine for payers, with several crediting the plans with increases in revenue and membership. About 21 million Americans — more than a third of Medicare beneficiaries — are enrolled in MA plans, and that number is only expected to rise as CMS creates more flexibility for payers. L.E.K Consulting predicts MA enrollment will jump to 38 million, or 50% of market penetration, by 2025.
But MedPAC wants CMS to pump the brakes, and recommended the agency work to curtail the practice of intensive coding practices and plan consolidation that allow payers inflate payments by as much as 2%. The committee also suggested CMS revisit its star rating system for MA plans.
MA star ratings, MedPAC argued, ignore geographic differences, making them difficult to reliably compare.
"Because contracts can cover wide (and discontiguous) geographic areas and quality results are often determined based on only a small sample of beneficiary medical records, Medicare and beneficiaries lack important information about the quality of care of MA plans in their market," MedPAC said.
The report's focus on MA star ratings coincides with CMS' long-awaited update to its hospital star rating system, which issues a one-to-five rating for providers based on quality reporting. Though it's designed to provide consumers with a way to compare hospitals, the system itself has been repeatedly lambasted for being flawed and damaging the reputation of providers.
The commission also re-emphasized what it feels is the need to consolidate CMS' many quality measurement programs, and urged the agency to boost reimbursements to providers in 2020.
MedPAC has been a leader in the widespread opposition to CMS' myriad quality reporting programs. While the commission's recommendations aren't binding, they are meant to inform Congress as it makes important rulemaking decisions.