Proposed Medicaid DSH Payment Cuts Will Affect Physicians

May 23, 2013

Here's why physicians may want to discuss proposed Medicaid cuts to hospitals with their employers sooner than later.

In response to hospitals’ concerns over the $64 billion in planned funding cuts to hospitals who treat a disproportionate share of low-income patients, HHS released proposed rules in the May 15 Federal Register. Between FY 2014 and 2019, Medicaid funds will be reduced by 50 percent ($14.1 billion), according to Bloomberg News. The proposed rule, which is soliciting comments through July 12, 2013, provides a methodology to implement the annual reductions for FY 2014 and FY 2015. The rule also proposes adding additional Medicaid Disproportionate Share Hospital (DSH) reporting requirements for use in implementing the DSH health reform methodology.

The offset in the reductions was supposed to come from the increase in the number of insured individuals. Sections 1902(a)(13)(A)(iv) and 1923 of the Social Security Act ("the Act") require states to allocate funds to DSH hospitals. The Affordable Care Act ,§2551 amended §1923 of the Act. The provisions call for "aggregate reductions in federal funding under the Medicaid program for such DSH payments for the 50 states and the District of Columbia." (May 15, Federal Register). Because of the number of states opting out of the Medicaid expansion, as well as the Government Accounting Office estimates on the number of people that will be insured, this could have significant implications on providers, including physicians.

Given the various joint venture arrangements and accountable care organizations (ACOs) that have emerged, physicians should consider the impact. As Bloomberg points out, one hospital executive indicated an estimated $150 million loss over seven years. The seven-year period is derived from the tiered funding reduction structure, which begins October 2014 with a reduction of $500 million and escalates in subsequent years. Yet, if a physician has entered into a joint venture or an ACO with a for-profit hospital or health system (i.e., HCA or Tenet), the impact could be less. Additionally, proposals to increase Medicare payments by 0.8 percent are in the works.

Overall, this is an area for physicians to watch and discuss with the hospitals where they practice.