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MACPAC Makes Recommendations on Medicaid DSH Allotments

January 25, 2019

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PRESS CONTACTS
Jason Kleinman, Senior Legislative Analyst, Govt. Relations
Andrew Amari, Hospital Policy and Regulatory Specialist

The Medicaid and CHIP Payment Advisory Commission (MACPAC) passed three recommendations related to Medicaid disproportionate share hospital (DSH) payments and discussed potential recommendations about the Medicaid shortfall definition during its Jan. 24-25 public meeting.

Under current law, Medicaid DSH funding is scheduled to be reduced by $4 billion in fiscal year (FY) 2020 and $8 billion per year between FYs 2021-2025. After discussing the recommendations at its previous meetings, the commission passed the following recommendations:

  • In order to phase in DSH allotment reductions more gradually without increasing federal spending, Congress should change the schedule of DSH allotment reductions to $2 billion in FY 2020, $4 billion in FY 2021, $6 billion in FY 2022, and $8 billion per year in FYs 2023-2029;

  • In order to minimize the effects of DSH allotment reductions on hospitals that currently receive DSH payments, Congress should require the Department of Health and Human Services (HHS) Secretary to apply reductions to states with DSH allotments that are projected to be unspent before applying reductions to other states;

  • In order to reduce the wide variation in state DSH allotments based on historical DSH spending, Congress should require the HHS Secretary to develop a methodology to distribute reductions in a way that gradually improves the relationship between DSH allotments and the number of non-elderly, low-income individuals in a state.

Commissioners expressed strong concerns about the severity of the scheduled Medicaid DSH cuts and unanimously approved the first two recommendations. The third recommendation passed, 16-1, after some commissioners questioned whether the number of non-elderly, low-income individuals in a state is the best metric to use to restructure the DSH allotments. The commission had previously discussed using other factors, including the uninsured rate. 

Additionally, MACPAC staff presented potential policy options for addressing third-party payments in the DSH definition of Medicaid shortfall. Medicaid shortfall is defined as the difference between the cost of providing care to Medicaid-eligible patients and the payments received for those services.

Currently, third-party payments are not included as payments in the Medicaid shortfall definition, which allows hospitals to claim higher Medicaid shortfall even if they receive third-party payments. As a result, in-state distribution of DSH funds, as well as the limits on DSH payments to individual hospitals, are significantly impacted. Following discussions on the matter at previous meetings [see Washington Highlights, Sep. 14, 2018], staff presented three policy options for commissioners to consider:

  • Include payments from third-party payers in the Medicaid shortfall definition; 
  • Exclude payments and costs for patients with third-party coverage from the DSH definition of Medicaid shortfall entirely; or
  • Develop different rules for different types of third-party coverage situations.

Commissioners strongly expressed support to make a recommendation on the subject during the March or April MACPAC meetings, but seek further information on potential recommendations for the coming meetings before they vote.

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