'Medicaid shortfall' definition should change when tallying DSH payments, MACPAC says

To avoid Medicaid making disproportionate share hospital (DSH) payments to cover costs already paid by other payers, Congress should change the definition of "Medicaid shortfall," the Medicaid and CHIP Payment and Access Commission said Thursday.

That definition should exclude payments for Medicaid-eligible patients for whom Medicaid is not the primary payer, according to a majority of commissioners in the nonpartisan legislative branch agency that makes recommendations to Congress, the Department of Health and Human Services and the states regarding Medicaid and the Children's Health Insurance Program (MACPAC).

At issue is the 2018 court ruling that found third-party payments could not be counted in the shortfall calculation and allows hospitals to claim higher Medicaid shortfall even if they receive third-party payments.

RELATED: MACPAC considers recommending change to definition of 'Medicaid shortfall' at safety net hospitals

That decision has been appealed. In-state distribution of DSH funds, as well as the limits on DSH payments to individual hospitals, have been affected by the change. 

But commissioners said they believe Congress should change the statute to reverse the effects of the court ruling so DSH payments do not pay for costs that are paid for by other payers. 

The goal, they said, is to make more DSH funds available to safety-net hospitals and avoid creating disincentives for hospitals to serve Medicaid-eligible patients with third-party coverage. DSH payments to an individual hospital cannot exceed a hospital's uncompensated care costs.

It would also bring administrative simplicity, they said. A Centers for Medicare & Medicaid Services policy from 2010 requires auditors to collect information about third-party payments from hospitals.

The Congressional Budget Office estimates the policy would have an insignificant impact on federal spending and would make no change to state DSH allotments. It might affect spending in states with unspent DSH funds.

Hospital groups including the American Hospital Association called on MACPAC to delay making any recommendations in light of court challenges.