Blog Post

The big cuts coming for safety-net hospitals in the new fiscal year

October 1, 2014

    Juliette Mullin, Senior Editor

    The Affordable Care Act-mandated cuts to Disproportionate Share Hospital (DSH) payments increase today—by more than hospitals initially expected. The reductions will be especially tough for hospitals in states that have not expanded their Medicaid programs.

    Background on the DSH cuts

    The reductions in DSH payments, which offer additional funding to hospitals with high levels of uncompensated care, have been a major source of anxiety for hospitals in states that have opted not to expand Medicaid.

    The cuts were developed as an offset for the cost of the ACA's Medicaid expansion and are based on the assumption that the ACA's coverage expansions would reduce a larger portion of hospitals' uncompensated-care costs. Altogether, the ACA requires $18.1 billion in total reductions from fiscal year (FY) 2014 through FY 2020, effectively halving the size of the safety-net program.

    However, the Supreme Court's ruling on the ACA allowed states to opt out of the expansion. This meant that hospitals in states that do not expand Medicaid would lose DSH funding without benefiting from an influx of new Medicaid patients.

    Pennsylvania just expanded Medicaid. Who's next?

    The cuts in FY 2015 

    Eric Fontana, practice manager of the Advisory Board's Data and Analytics Group, says the DSH cuts this fiscal year will be "significant." He explains, "From the perspective of national operating payments, the finalized regulations indicate that DSH cuts drive a 1.3% decrease in operating payments in FY 2015 relative to FY 2014."

    Get a broad view of how Medicare payments change in FY 2015

    In context, he says, "That's bigger than any other single payment adjustment in this year's regulations."

    But not all hospitals will be affected in the same way. Fontana says that an organization's change in DSH payments will be determined by their "Factor 3." He explains, "This is an estimate of the proportion of uncompensated care the hospital provides of all uncompensated care in the nation, using the Hospital's Medicare & Medicaid Supplemental Security Income and insured low-income patient days as the basis for the calculation."

    How the cuts will affect your hospital

    Check out our Medicare inpatient payment assessment or log into the Customized Assessment Portal to find out how DSH will affect your hospital.

    Estimate your hospital's Medicare payments for FY 2015

    Estimate the impact of CMS's Inpatient Prospective Payment System final rule on your institution's Medicare inpatient revenues for FY 2014 and 2015.

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