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Medicaid Commission Examines Uncompensated Care Funding Impact

By Marissa Evans, CQ Roll Call

September 15, 2016 – Safety-net hospitals are facing reduced federal funding for the care of people who are not insured, and the Medicaid and CHIP Payment and Access Commission (MACPAC) is grappling with what kinds of policies to recommend that could affect hospitals still relying on uncompensated care funding.

On Thursday, the 18-member commission examined funding for so-called disproportionate share, or DSH, hospitals that care for a high percentage of Medicaid and uninsured patients compared to other providers. Medicaid is the joint federal-state health insurance program for the poor and disabled.

The meeting comes as the federal funds for safety net hospitals are scheduled to decline during fiscal year 2018. The commission, also known as MACPAC, discussed whether the 31 states and District of Columbia that have expanded Medicaid eligibility residents with incomes up to 138 percent of the poverty level should see their DSH funding recalibrated.

"Whether the Medicaid expansion decision ought to be viewed in isolation rises to me as a very important" issue, said Sara Rosenbaum, chair of MACPAC and a health policy professor with the George Washington University Milken Institute School of Public Health.

The commission said that between 2013 and 2014, uninsured patient care fell by 25 percent in states that expanded Medicaid eligibility under the health care law and only 13 percent in non-expansion states. Hospitals in expansion states also were pleased with a 37 percent decrease in charity care and unpaid patients' debts as part of their operating expenses. Expansion states enjoyed a $5.8 billion reduction in charity care and bad debt overall in that same time period. While such care was falling in expansion states, hospitals in non-expansion states faced a $300 million increase in uncompensated care.

Brian Burwell, a commissioner for MACPAC and vice president for community living systems at Truven Health Analytics, said during the meeting that the commission should further examine how hospitals are using DSH funding and make recommendations for how the funds should be used. He said it’s difficult to tell if hospitals are being inefficient or the variety of beneficiaries is causing them not to make the most of the funding.

"There could be a moral hazard that with expansion, some of these hospitals have been flooded with patients who are Medicaid and altered the payer mix in those hospitals that are deemed DSH hospitals or those hospitals that happen to take care of these patients," Burwell said.

State officials and the Centers for Medicare and Medicaid Services have been in tough negotiations in recent years over uncompensated care funding. States like California, Florida, Tennessee and Texas rely on uncompensated care funds for hospitals since it is a reliable pool of funding for treating their relatively large Medicaid populations. But federal officials are planning for the program to wind down and have pointed to Medicaid expansion as a way to shore up funding for hospitals.

The presentation to MACPAC noted that Medicaid expansion states will be heavily affected by the new uncompensated care formula during fiscal year 2018. The reductions will be partly based on the number of uninsured people in the state.

Christopher Gorton, one of the commissioners and president of public plans at Tufts Health Plan, said that he is wary of MACPAC making recommendations about DSH without thinking about how it impacts other parts of a state’s health delivery system.

"MACPAC should think about making recommendations about equitable distribution in Medicaid funds including DSH, but at the end of the day, the state should decide how they allocate it," Gorton said. "They have more insight into how their mental health and foster systems and all of the other things work than the federal level."

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