Hospitals to Lose Billions in Disproportionate Share Hospital Funding Due to Cuts by Federal Administration

March 13, 2020

Crop close up of piggy bank on wooden table in hospital or private clinic for monetary donation

While the government continues to recognize that some hospitals serve a significantly disproportionate number of low-income and underinsured patients (“disproportionate share hospitals”), there’s a move to reduce the federal reimbursements provided in the past. These hospitals are facing sizable reductions in federal compensation with a total of $4 billion in cuts on the table for 2020.

Almost a year ago, Healthcare Finance News reported that “Large hospitals and teaching hospitals are the most likely to see reduced penalties; those in states with high Medicaid enrollment will fare better.” At that time they also reported that “Under the new rules, penalties for the hospitals serving the fewest poor patients are projected to increase more than $12 million in total. Meanwhile, penalties for the hospitals serving the highest proportion of poor patients are projected to decrease by more than $22 million in total. On an individual hospital level, the changes are projected to range from an increase in penalties of $225,000 to a decrease of $436,000.” Since this was for the year ending in 2019, we don’t have results yet.

2020 isn’t looking any easier for DSH hospitals. Modern Healthcare is reporting that “hospitals, state officials and many policy experts oppose a proposed federal rule that would create new Medicaid reporting requirements and likely reduce provider payments, Medicaid funding and beneficiaries’ access to care. The Medicaid Fiscal Accountability Regulation would give states less freedom to determine how much they pay Medicaid providers or how they finance their Medicaid programs. The Trump administration proposed the rule because it’s concerned that states collect excess federal Medicaid funds by gaming the state-federal Medicaid financing system.” The real worry is that:

“Most stakeholders are concerned that the administration’s effort to protect the program’s fiscal integrity will destabilize Medicaid and make it more difficult for doctors and hospitals to care for Medicaid enrollees.”

The results of the Medicaid related payments rule would cut $4 billion from disproportionate care hospitals. So far hospital lobbying groups including the American Hospital Association (AHA), Association of American Medical Colleges (AAMC), and five other national hospital groups have succeeded in delaying these payment reductions, but RevCycle Intelligence is reporting that these cuts are now planned for May 2020.

The cuts are also affecting states. A recent report at, quotes Gov. Andrew Cuomo (New York) as blaming the federal government “for denying a Medicaid waiver for a program that was hatched from the 2011 Medicaid redesign and could cost the state more than $600 million.” Cuomo has framed the issue as “not necessarily dire for the state but a sign of how the federal government continues to take a punitive posture toward a blue state.” The New York Hospital Association has also weighed in, releasing a statement that reads in part, “By significantly reducing preventable hospital admissions and readmissions, DSRIP [Delivery System Reform and Incentive Payment] dramatically improved care delivery and achieved major savings for the Federal government. But rather than build on those gains, CMS has chosen to punish New York. This makes no sense.”

Why the compensation cuts? The RevCycle Intelligence article goes on to explain that “The Affordable Care Act (ACA) requires policymakers to reduce Medicaid DSH payments. At the time of passage, Congress assumed that coverage expansions would drastically decrease the number of uninsured patients in the country, resulting in less hospital uncompensated care.”

While industry lobbying groups are having some success, the net result is delaying the inevitable with the moment of truth still scheduled to come down soon. So, current strategies to address the issue include calls for support of pending legislation offering coverage for “Surprise Medical Bills.” They explain at the AHA website that “America’s hospitals and health systems are committed to protecting patients from ‘surprise bills’ and support a federal legislative solution to do so. These types of bills may occur when a patient receives care from an out-of-network provider or when their health plan fails to pay for covered services.” The AHA has been issuing a series of “alerts” to hospital members to support the legislation with similar bills now moving through both the House and the Senate.

The AHA has prepared a factsheet on “Surprise Billing Legislation.” They include their position on payments to hospitals that need federal payments most, writing that “once the patient is protected, providers and insurers should be allowed to negotiate payment rates for services provided. We strongly oppose approaches that would impose arbitrary rates on providers as it would compromise patient access to care and create a disincentive for insurers to maintain adequate provider networks, particularly in rural America.”

Four solutions from R1 Regulatory Navigation

R1 is pleased to offer solutions that address issues covered in this article and helps hospital clients maximize Medicare reimbursement. Our “one partner, one process” approach brings together an experienced team of Medicare reimbursement professionals and proprietary software for best results with minimal disruption. In the suite we address the following hospital revenue challenges:

  • Disproportionate Share Hospital: The United States government funds hospitals that treat indigent patients through the Disproportionate Share Hospital (DSH) programs, under which facilities can receive at least partial compensation. Although 3,109 hospitals receive this adjustment, Medicare DSH payments are highly concentrated.
  • Medicare Bad Debt: On average, the government program pays hospitals about 87 cents for every dollar of their costs, compared with private insurers that pay $1.45. Some hospitals profit from Medicare, but most depend on higher private payments to cover their overall costs.
  • Worksheet S10: Worksheet S-10 is part of a hospital’s cost report and the Centers of Medicare & Medicaid Services (CMS) use it to determine the level of uncompensated care a hospital provides. Both Prospective Payment System (PPS) and Critical Access Hospitals (CAHs) complete the S-10.
  • 340B Discovery: Hospitals often fail to periodically review their internal operational process to detect drugs that should have qualified for 340B savings but went undetected due to internal or operational errors.

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