Issuing a series of Medicaid policy recommendations to Congress in January 2019, the Medicaid and CHIP Payment and Access Commission (MACPAC) opted to include guidance on changes in payments made to disproportionate share hospitals (DSH) in its annual report.

As it stands, DSH cuts are expected to begin this coming federal fiscal year (FFY) 2020, at about $4B annually, followed by a jump to $8B each year through FFY 2025. MACPAC, however, recommends a more gradual increase in cuts over a longer period, the rationale being that hospitals and states need more time to readjust to the shrinkage of these revenue streams. To allow time for states to regroup and strategize, MACPAC instead calls for $2B to be cut in FFY 2020, followed by $4B in 2021, $6B in 2022, and $8B from FFYs 2023 through 2029.

The original provisions of the Affordable Care Act (ACA), which mandated Medicaid expansion in every state, also included plans for reduced DSH allotments. These planned reductions were offset by the assumption that the expansions would reduce uncompensated care costs as more and more people in each state would become eligible for Medicaid.

The 2012 landmark Supreme Court case, however, known as National Federation of Independent Business v. Sebelius, which then upheld the Act’s individual-mandate provision, also struck down the federal requirement that states expand Medicaid eligibility. By consequence, assumptions that once motivated DSH cuts became less clear; now debate on the matter remains more critical than once assumed.

As with past recommendations, MACPAC’s input on the matter was sought by Congress, even though the legislative body doesn’t always enact the commission’s advice. The issue impacts many parties at many levels, however, including state legislatures and safety-net hospitals, some of which support MACPAC’s proposed revisions to the schedule of funding cuts.

Whether or not Congress will enact these recommendations remains to be seen, but DSH-allotment cuts are no stranger to delays at the federal level. CMS originally issued the proposed rule in July 2017 to implement the eight-year plan starting in FFY 2019, but a budget bill in February 2018 pushed off the start date by another full year. And, as mentioned, the ACA had originally called for annual reductions in Medicaid DSH payments from FFYs 2014 through 2020, and it wasn’t until Congress later amended the plan that a timeline starting later and ending in FFY 2025 began to take shape.

The reductions originally intended by the ACA were meant to be offset by the then federally mandated Medicaid expansion. Now as some states have expanded and others have not, rates of uninsured patients—and thus uncompensated care costs—vary widely for reasons beyond simple demographics. Addressing this issue, MACPAC also included in its recommendations that a new methodology be developed to spread the DSH cuts so that states with higher rates of low-income individuals, and not simply uninsured individuals, see less drastic reductions. Some MACPAC panel members, however, argued that the uninsured rate ought to be the guiding light of the methodology instead of income levels, which in theory would be more beneficial to non-expansion states that are home to larger uninsured populations.

Whether the planned DSH cuts will find further delays down the line remains to be seen; ongoing debate continues to stoke discussion of the matter. What does seem to be clear, however, is that policy continues to point to value-based solutions, and since DSH payments aren’t tied to quality metrics, it seems to follow that CMS is looking to steer states from this stream toward alternative funding mechanisms.

By Joe Madsen and Jeff Harris