Navigating Disproportionate Share Hospital Payments Situation

June 6, 2019

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When it comes to hospitals receiving adequate Disproportionate Share Hospital (DSH) payments, the evolving situation depends on prevailing healthcare legislation, the temperament of the Supreme Court and guidance and rule changes from CMS and Medicaid advisory groups. Even the status of the ACA (Affordable Care Act) will affect hospital revenue cycles.

Now, Modern Healthcare reports that “A Medicaid advisory panel doesn’t want to count third-party costs and payments in the calculation of the Medicaid shortfall for disproportionate-share hospitals, a move that could increase DSH payments to hospitals that serve a high share of Medicaid-only patients.”

What’s at stake for DHS hospitals?

Healthcare Dive sums it up like this: “Policy changes since 2010 have cut payments to hospitals by billions of dollars, a report earlier this year from consulting firm Dobson DaVanzo & Associates forecast, with a prediction the cuts would reach $218.2 billion by 2028. The cuts include $25.9 billion for Medicaid Disproportionate Share Hospital (DSH) payments, a key source of financing for hospitals that serve low-income populations.” Those dollar estimates come from a 2018 report by consulting firm Dobson Devanzo and submitted to The Federation of American Hospitals (FAH) and The American Hospital Association (AHA).

Looking to the future, the Dobson Devanzo report also notes that “The ACA required reduction in federal Medicaid Disproportionate Share Hospital (DSH) allotments of $18.1 billion beginning in 2014, to account for the decrease in uncompensated care anticipated under health insurance coverage expansion. However, numerous pieces of legislation have been enacted since 2010 that have delayed the ACA’s Medicaid DSH reduction schedule which will take effect in 2020 and continue through 2025. These legislative delays also included increases in the amount of the Medicaid DSH reductions to $44.0 billion.”

In a related article in Modern Healthcare, we learn that a Medicaid advisory panel known as MACPAC (Medicaid and CHIP Payment Advisory Commission) “doesn’t want to count third-party costs and payments in the calculation of the Medicaid shortfall for disproportionate-share hospitals, a move that could increase DSH payments to hospitals that serve a high share of Medicaid-only patients.” The article also notes that, “What can be included in a shortfall has a major impact on the amount of DSH payments that a hospital can receive. Under federal law, a DSH payment to a hospital cannot exceed the shortfall amount.”

State disproportionate share hospital payments versus federal payments

We took a look at DSH related rules from, and learned that “federal law requires that state Medicaid programs make DSH payments to qualifying hospitals that serve a large number of Medicaid and uninsured individuals. Federal law establishes an annual DSH allotment for each state that limits Federal Financial Participation (FFP) for total statewide DSH payments made to hospitals.” Further, “For states to receive FFP for DSH payments, federal law requires states to submit an independent certified audit and an annual report to the Secretary describing DSH payments made to each DSH hospital.”

Further down that rules page we begin to learn of the impact to hospitals. Some DSH funding may have to be returned to the state or federal government due to recent rule and guidance changes. The government advises, in part, that as of December 30, 2018, and in light of four recent appellate court decisions, the Centers for Medicare & Medicaid Services (CMS) expects that any overpayments to hospitals identified in the audits will either be redistributed to other DSH-eligible hospitals…or be refunded to CMS in accordance with the regulation. The site also covers a host of DSH and payment related issues.

But the Supreme Court is reviewing disproportionate share hospital payments rules, and early this year a report came out suggesting that at least two justices are leaning toward the hospital’s side of the case. Justices have “pushed back on the federal government’s sweeping Medicare payment change cutting billions of dollars from hospitals.”

The article, also at Modern Healthcare, goes on to note that both a liberal and conservative justice (Sonia Sotomayor and Neil Gorsuch) are questioning the government’s 2014 formula for Medicare payments to DSH hospitals — a change that “was put into place without a public notice-and-comment period, which several hospitals claim violates federal law.”

What’s next for Disproportionate Share Hospital payments?

The Supreme Court has yet to issue a ruling and the complex situation also includes state based decision making related to the Affordable Care Act (ACA) which at time of writing is still in play. The Kaiser Family Foundation summed up the state angle and other components in a revealing article from 2016, writing that, “the Affordable Care Act (ACA) is leading to changes in hospital payer mix, especially in states adopting the Medicaid expansion where studies have shown a decline in self-pay discharges and a corresponding increase in Medicaid discharges.”

Second, the ACA calls for reductions in DSH payments, and other federal policy changes are focused on limiting the use of supplemental payments. These changes could have important implications for Medicaid payments to hospitals at the same time that Medicaid is a growing share of hospital payer mix, especially among safety net hospitals that serve a disproportionately high number of Medicaid and uninsured patients.”

What will eventually happen to related ACA rules pertaining to DSH hospitals? We don’t know that yet, and it looks like the Trump administration will not get to it during its first term. The “executive education” site, Open Minds, wrote a big picture analysis way back in 2013 that still holds as a situation summary today: “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.” We will keep you posted as the disproportionate share hospital payments story continues to develop.

We know that keeping up with the changing Medicare reimbursement rules and regulations is a challenge for all hospitals. Revint maximizes Medicare reimbursement on both a retrospective and prospective basis through our best in class Disproportionate Share Hospital (DSH), Worksheet S-10 and Medicare Bad Debt (MBD) services. Also, we support most other areas of the Medicare cost report, including medical education and organ transplant reviews, along with full preparation and comprehensive reviews. R1’s software uses advanced data algorithms and intelligent queries to effortlessly find eligibility matches that other firms cannot. Learn more about R1 Medicare reimbursement.

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