Medicaid DSH payment cut barely averted as House, Senate pass short-term federal funding

Hospitals received a last-day reprieve from substantial cuts to Medicaid disproportionate share hospital (DSH) payments, with House leaders reversing course Sept. 30 and ushering through a six-week government funding package.

Language in the bill ensures a four-year, $32 billion Medicaid DSH cut will not take effect before Nov. 17. Most importantly, the bill bought time for Congress to enact a longer-term delay. With no action, the $8 billion year-one cut would have begun with the federal fiscal year that got underway Oct. 1.

In addition to postponing the DSH cut, the bill brought a six-week extension of funding for graduate medical education, community health centers, the National Health Service Corps (NHSC) and federal research into Type 1 diabetes.

Beyond the next month, questions linger about funding for those programs and about Medicare DSH payments. House Republicans are looking to pass full-year FY24 appropriations bills in the interim, and they intend to cut spending across much of the federal government. Those bills then would be subject to negotiations with the Senate, where Democrats hold a slim majority. A further note of uncertainty around all proceedings was added when Rep. Kevin McCarthy (R-Calif.) was removed as speaker Oct. 3.

How the cut would be felt

If a Medicaid DSH cut becomes a reality, the impact on safety-net hospitals would be felt at different times based on variation in state schedules for making payments. Many states make payments quarterly, meaning reduced payments would start going out in Q1 2024.

The cut would vary drastically by state based on factors such as uninsured rates and the degree to which a state’s DSH funding is targeted to hospitals with high volumes of Medicaid patients and uncompensated care (more-precise targeting would translate to a smaller cut). The percentage decrease in funding would range from 6.1% in South Dakota to 90% in Rhode Island, according to a 2023 report by the Medicaid and CHIP Payment and Access Commission (for a full breakdown, see the map on page 104).

Bipartisan blocs in both houses of Congress have used written communications to leadership to convey the importance of keeping the cut from being implemented in the current environment for hospitals. Advocacy groups such as America’s Essential Hospitals have described how such a cut could disrupt the ability of safety-net hospitals to offer vital services to their communities.

The Medicaid DSH cut would coincide with a $943 million reduction in Medicare uncompensated care payments as finalized in the FY24 rule for hospital inpatient payments.

The implications of a shutdown

As in past instances when much of the government shut down after Congress did not pass funding provisions, the healthcare industry would avoid a far-reaching immediate impact if the parties cannot agree to terms next month.

The U.S. Department of Health and Human Services (HHS) has drafted contingency plans for operating during a government shutdown. The department would furlough more than 37,000 staff, or 42% of employees. Sub-agencies would be able to continue certain activities deemed critical, such as hazard preparedness, research, drug and medical device reviews and disease outbreak monitoring.

At CMS, Medicare payments to providers would not be affected because the program is not subject to discretionary funding. But HHS cannot guarantee that there won’t be delays in processing claims in the event of a prolonged shutdown, given that an estimated 51% of CMS staff would be subject to furlough. About 5% would continue to work but would not be paid in the interim; employees (but not necessarily contractors) would receive back pay once Congress passes funding.

General Medicaid funding would be available for one calendar quarter after a shutdown. The federally facilitated Affordable Care Act insurance marketplaces would continue to operate, as would fraud-and-abuse monitoring and the Center for Medicare & Medicaid Innovation.

It’s believed that CMS would have to stop certain monitoring activities, including those pertaining to states’ handling of ongoing Medicaid disenrollments. Any such rollback could stymie actions such as a recent requirement for 29 states and Washington, D.C., to pause disenrollment of some beneficiaries until they solve a programming glitch.

Big healthcare bill stalled

The push to keep the government funded has relegated at least one sweeping healthcare transparency bill to the backburner.

The Lower Costs, More Transparency Bill would strengthen and codify price transparency requirements for hospitals and various other healthcare settings. It also would postpone the Medicaid DSH cuts by two years and fund graduate medical education, community health centers and the NHSC.

The bill seemed to have momentum in September after the leadership of three House committees forged a combination of various provisions that had been approved at the committee level. However, the bill was pulled from fast-track consideration on the House floor because it did not have the requisite support. Consideration under normal procedures is unlikely to happen before the larger government funding issues get resolved.

In the Senate, the Bipartisan Primary Care and Health Workforce Act would bolster funding to train primary care clinicians, with an emphasis on filling gaps in rural and underserved areas.

Hospital advocates are concerned that cost-saving measures in the legislation include a ban on contracting strategies that restrict health plan steerage.

In addition, off-campus hospital outpatient departments would need to bill under a unique provider identifier in order to be paid by group health plans. The House bill applies a similar provision to Medicare payments.

Off-campus outpatient departments also would be prohibited from charging facility fees for telehealth visits and evaluation and management services as billed to health plans. It’s a more expansive version of a clause in the House bill that establishes site-neutral Medicare payment for drug administration services.