Healthcare News & Insights

Proposed rule takes the edge off looming hospital funding cuts

Hospitals worried about how looming Affordable Care Act requirements may affect their budgets are getting a bit of a reprieve with a new proposed rule affecting federal funding.

GavelStethUnder the Affordable Care Act, the government planned to cut Disproportionate Share Hospital (DSH) funding by $500 million, making it more difficult for hospitals to provide care to patients with financial hardships.

The cuts are set to go into effect next year and continue throughout the decade, with the ultimate goal of reducing the payments by close to $18 billion, according to an article in the Business Journal.

To balance out this effect, states were told to expand their Medicaid programs so that more uninsured people would be covered, per the Affordable Care Act. That way, hospitals would still be reimbursed for their care.

But since states can choose whether or not they’ll participate in Medicaid expansion, hospitals in areas where officials have pledged to block expansion efforts would face significant financial cuts once the rule goes into effect.

So the Centers for Medicare & Medicaid Services (CMS) added another provision to the rule to soften the blow: The government will create a formula for DSH payments that takes into account whether a hospital’s state is expanding Medicaid, which will adjust the payments accordingly.

Cuts on a sliding scale

According to the rule, the formula will attempt to:

  • Apply smaller reductions to states considered “low DSH” states
  • Apply larger reductions to states with the fewest uninsured people once the new regs kick in, and
  • Apply larger reductions to states who don’t allot their DSH payments to hospitals with high volumes of inpatients who receive Medicaid – or who don’t target the payments for hospitals that provide high levels of uncompensated care.

The formula will also try to keep funding intact for Medicaid pilot projects in various states authorized under Medicaid demonstration waivers, since these waivers are funded with DSH payments.

Although some may see this as putting a Band-Aid on an infected wound, every effort made to limit the impact of these cuts is a step in the right direction. Moving forward, the real challenge will be ensuring that hospitals in all states receive the appropriate funding to offset the charity care they provide, especially in the current healthcare climate.

As a way to make the transition less burdensome on hospitals, President Obama has asked Congress to delay the DSH funding cuts until 2015, but nothing’s been decided on that front just yet. We’ll keep you posted.

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