The wonky Medicare proposal worrying safety-net hospitals

Hospitals in some states that haven’t expanded Medicaid coverage worry a proposed Centers for Medicare and Medicaid Services policy could deprive them of hundreds of millions of dollars in disproportionate share hospital payments.

In its most recent hospital payment rule, CMS proposed excluding certain uncompensated care pool days from the Medicare Disproportionate Share Hospital calculation.

This seemingly technical adjustment raised alarms at hospitals in a handful of states, including Texas, Florida and Tennessee, that believe the change could take away Medicare reimbursements they earn by caring for needy patients.

“We know it’s going to be a pretty substantial negative impact, just simply because of the volume of uncompensated care that is delivered in our state,” said Anna Stelter, senior director of policy analysis at the Texas Hospital Association.

States can use Medicaid Section 1115 demonstration project waivers to expand eligibility to new categories of people. Waivers can also offer targeted benefit packages to certain groups, or can be used to create uncompensated care pools, which pay hospitals for taking care of uninsured or underinsured patients.

CMS has generally not allowed uncompensated care waiver days to count towards Medicare DSH payments. But a string of court decisions, most recently in 2020, has confirmed hospital are legally permitted to do so.

The U.S. Court of Appeals for the District of Columbia Circuit ruling two years ago also enabled hospitals to amend open cost reports from previous years to include days covered by uncompensated care pool waivers, and attempt to appeal closed cost reports to get retroactive reimbursement.

Some Tennessee hospitals are looking back as far as 2010 and expect they’re eligible for millions of dollars, said Amanda Newell, vice president of financial policy at the Tennessee Hospital Association.

Now, CMS wants hospitals to only count patient days paid through Medicaid waivers towards Medicare DSH if patients get comprehensive, CMS-approved health benefits or assistance paying premiums for non-Medicaid coverage.

CMS maintains it has the authority to exclude uncompensated care pool days from the DSH calculation.

“While these pools may result in hospitals receiving some payment for inpatient hospital services they provide to uninsured or underinsured individuals, such payments are not a form of health insurance and do not entitle any particular individual to any specific benefit. Rather, payments from uncompensated/undercompensated care pools essentially function as supplemental Medicaid DSH payments,” the proposed rule reads.

But the court rulings indicate that CMS’s interpretation of the law isn’t right, said Mark Polston, a partner at law firm King & Spalding who represented Florida hospitals in the case the appeals court decided in 2020.

“Those are benefits, whether it’s packaged up as a nice little package of insurance benefits, or whether it’s money that you’re giving on behalf of this person to the hospital,” Polston said.

CMS asserts it can’t estimate the proposal’s financial impact on hospitals because the agency doesn’t know how many extra Medicaid days each hospital could include in their Medicare DSH calculations without the policy, according to the draft regulation.

Hundreds of millions of dollars could be at stake, Polston said. Both the Texas Hospital Association and Florida Hospital Association are analyzing the proposal’s financial impact.

The policy, if finalized, would have the largest effect on hospitals in states that haven’t expanded Medicaid coverage, said Anne Karl, a partner at Manatt Health. While some states that have expanded Medicaid also have uncompensated care pools, states such as Texas and Florida in particular have come to rely on the pools in place of the additional Medicaid matching funds that come with expansion.

Florida can receive up to $1.5 billion in funding for its uncompensated care pool every year, although the full allocation has not been used in past years, and Texas can receive up to $3.87 billion. Tennessee and Kansas also have uncompensated care pools and have not expanded Medicaid, but their pools are smaller.

“This is going to be bad for hospitals in those states,” Karl said.

In Texas, the policy would disproportionately hurt public safety-net hospitals, Stelter said. Excluding these days from the DSH calculations would be especially harmful now, as funding for COVID-19 relief programs is winding down.

“It’s important that the payments that the court has said they’re entitled to stay turned on, because the balancing act between moving forward in a post-pandemic, post-super-crisis world is going to rely on those consistent streams of funding,” Stelter said.

CMS’s proposal to exclude uncompensated care pool days from Medicare DSH seems like a punishment against non-expansion states, even though state hospital associations have supported Medicaid expansion, Stelter said.

Despite the financial implications for hospitals, this policy is more of a course correction on DSH methodology than an effort to force holdout states into Medicaid expansion, according to Eliot Fishman, senior director of health policy at Families USA.

“The point of that specific DSH channel is to steer supplemental Medicare reimbursement to hospitals that see a lot of Medicaid patients. [Uncompensated care] pools reimburse for uninsured patients, they’re not Medicaid coverage,” Fishman wrote in an email.

Regardless, CMS’s decision to return to the proposal after losing in court and not finalizing it last year is frustrating, Florida Hospital Association President and CEO Mary Mayhew said.

“It really feels punitive to the hospitals that are on the front lines, providing the charity care, meeting the needs of those vulnerable populations,” she said.

The proposal would ultimately mean unfair reimbursement to facilities in states with uncompensated care pools, Newell said. “Tennessee hospitals should be receiving full credit for the treatment and care of uninsured and underinsured patients,” she said.

CMS seems prepared to finalize the policy this year, although there’s likely to be litigation if they do, Polston said.

If the agency moves forward with the policy, hospitals would not be able to count uncompensated care pool days on or after Oct. 1 towards Medicare DSH. But they could still get retroactive DSH reimbursement for earlier uncompensated care pool days, Polston said.

Hospitals should note their uncompensated care pool waiver days in future cost reports if the policy is finalized to preserve their rights if the new policy is struck down in court, Polston said.

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