Safety net hospitals issue warning about looming DSH cuts

May 17—Faced with $4 billion in cuts to Medicaid uncompensated-care payments, starting in October, some hospitals warn they may have to close.

The planned cut of one-third of total Medicaid disproportionate share hospital (DSH) funding in FY20 will be enough to reduce average safety-net hospital margins from 1.6% to -3%, Bruce Siegel, MD, president and CEO of America’s Essential Hospitals (AEH), said this month at a Capitol Hill briefing.

But it is the acceleration to $8 billion in DSH cuts in FY21 that will “put many hospitals at risk of closing,” Siegel said.

The first-year cuts would remove $11.1 million from the budget of East Alabama Medical Center in Opelika, Ala., said Laura Grill, president and CEO. That loss will eliminate the margin of the safety net hospital, which has $54 million in annual uncompensated-care costs for uninsured and underinsured patients.

The Medicaid DSH cuts, which were required as a funding mechanism under the Affordable Care Act (ACA), have been delayed four times but also inflated each time they were delayed. They are scheduled to total $43 billion by 2025.

AEH is pushing Congress for another two-year delay and is willing to discuss further increasing the total cut, if necessary, Beth Feldpush, DrPH, senior vice president of policy and advocacy for AEH, said in an interview.

This week, a bipartisan group of more than 300 member of Congress signed on to a letter to their leaders to urge support for the two-year delay in the cuts.

“Our nation’s hospitals cannot sustain losses of this magnitude,” the members of Congress wrote. “Institutions will be forced to shutter, leaving our constituents and communities without a vital safeguard.”

Impact would be widely felt

Hospital closure is a familiar threat in Alabama, where 13 hospitals have closed since 2011.

East Alabama Medical Center’s financial situation likely would improve if the state expanded Medicaid, Grill said. But the financial situation also is precarious for safety net hospitals in states that fully embraced the ACA’s coverage expansion.

For instance, Mitchell Katz, MD, president and CEO of NYC Health + Hospitals, said the first-year DSH cut would add $870 million to his organization’s $1.5 billion annual budget deficit.

“There is no way you can have a margin if your patients have no way of paying,” Katz said to congressional staff. “We’re staring at a cliff that threatens to cripple us.”

Medicaid, on average, covered only 87 cents of every dollar spent treating beneficiaries. And in 2017, hospitals provided $38.4 billion in uncompensated care, according to the latest data from the American Hospital Association.

Care initiatives would face elimination

In Indiana, another Medicaid expansion state, the Health & Hospital Corporation of Marion County has had to rely on DSH funding for a variety of initiatives aimed at lowering healthcare costs for patients. For instance, those funds pay for an initiative credited with cutting 911 calls from a targeted group of high-utilizers in half.

Another initiative funded through the DSH program paired social workers with police on 911 calls to determine whether serious mental illness was the underlying cause of a crime, and redirected appropriate cases for treatment instead of moving them into the criminal justice system.

However, the difficultly of quantifying savings from such initiatives complicated the organization’s ability to translate the savings for policymakers, said Matthew Gutwein, president and CEO of the Indianapolis provider.

“What we spend most of our time on is trying to prevent illness in the first place and keep patients well so that that they don’t have more expensive care needed later,” Gutwein said. “And the only way to do that is through large amounts of a combination of primary care, mental healthcare, case management, and wrap-around services. Those services all lose money, and it is DSH that allows us to provide those services.”

If DSH cuts go through, the hospital will have to cut those services to maintain its margin because other service lines do not lose money, he said.