Hold off on DSH cuts till reform takes hold

Guest post by Jim Lott

Last month the Centers for Medicare & Medicaid Services issued a proposed rule that would cut supplemental Medicaid disproportionate share hospital (DSH) payments by $1.1 billion over the next two years. This stunned the executives of many of our nation's almost 2,000 affected hospitals. They were bracing themselves for a much larger cut--$18.1 billion through 2020--as called for by the Affordable Care Act.

This backing off of sorts by CMS is a response to concerns that cuts like this so early in the process might delay the Medicaid coverage expansion goals in the ACA. CMS made a wise move considering so many states are still undecided about whether to participate in the ACA's Medicaid expansion plan. 

Similarly, CMS should curtail, if not eliminate, the 25 percent Medicare DSH payment cut scheduled for 2014--the first in the ACA-ordered reduction of 75 percent to this supplemental payment fund. Again, achieving the coverage expansion goals of the ACA has to happen before we remove these support funds from safety-net hospitals that provide high volumes of underpaid care to our nation's elderly, poor and uninsured residents.

We should not put these hospitals at risk when we have every reason to believe that the justification for taking away funding vital to their survival is not sound. Let's enroll and get coverage for those uninsured Americans who are eligible and mandated to have health insurance before we take away support for their medical care providers of last resort.

At the root of the problem is the flaw in the drafting of the individual mandate contained in the ACA.

Next year, the financial penalty for failing to secure healthcare coverage is $95 for the year per individual compared to an average annual health insurance premium cost of approximately $5,350 per individual. Given a choice of how to spend one's discretionary income, those individuals with serious medical care needs and not eligible for government subsidies or Medicaid will be the most motivated to take advantage of the coverage opportunities available through the state exchanges.

As a consequence, it is going to be difficult to get young, healthy people with incomes above 400 percent of the poverty level to fork over the price of an individual insurance policy when the penalty for not doing so is so low, due and payable only as a deduction from one's income tax refund. The Society of Actuaries recently predicted health insurance costs in the individual market would increase 32 percent by 2017 because more sick than well uninsured residents will be the first to take advantage of the ACA's private insurance coverage opportunity. The Congressional Budget Office similarly predicted premiums for individual coverage would be 10 to 13 perent higher than they would be without the ACA. 

It doesn't make sense to cut Medicare and Medicaid supplemental DSH funds before the coverage expansion goals of the ACA are met. In fact, it could cause irreparable damage to the safety net because those hospitals serving our remote rural and economically depressed inner-city communities may not survive long enough to see these goals achieved. And once these hospitals are gone, most will never be replaced.

Jim Lott is the former executive vice president of the Hospital Association of Southern California, a position he left last month.