AHA Condemns CMS Rule for Medicaid Third-Party DSH Payments

April 03, 2017 - The American Hospital Association expressed “deep disappointment” about a CMS final rule that will only include uncompensated care costs for covered Medicaid services in the calculation of hospital-specific DSH limits.  

The rule and the provisions of the final rule Medicaid Program; Disproportionate Share Hospital Payments – Treatment of Third Party Payers in Calculating Uncompensated Care Costs are effective June 2, 2017.  

AHA expressed concerns that states and organizations will only have limited time to comply with the directive.

“The AHA is deeply disappointed in CMS’s action to finalize its rule regarding how third-party payments are treated when calculating the hospital-specific limitation on Medicaid disproportionate share hospital payments,” said Tom Nickels, AHA Vice President of Government Relations and Public Policy.  

“Of particular concern is the decision by CMS to ignore requests to apply this change in policy in a prospective manner to give states and hospitals sufficient time to make needed adjustments to ensure compliance. We view this action as a good example of the need for significant regulatory reform and urge CMS to reconsider the rule.”

A year ago, AHA penned a letter asking CMS to pull the rule due to the possible detrimental impacts on the care of low-income patients and Medicaid DSH hospitals.

Before the final rule was enacted, CMS set standardization guidelines for DSH payments in earlier policies such as the 2008 DSH Final Rule and Subsequent Policy Guideline. This was to ensure appropriate use of Medicaid DSH payments and adhering to previous payment limits.

“Turning back to the example, the hospital-specific limit for the second hospital must take into account both the Medicaid and Medicare payments,” the Federal Register states.

“If the hospital-specific limit did not take into account the Medicare payments, the second hospital would be able to receive DSH dollars in excess of its uncompensated care costs. As federal DSH funding is limited by the state-wide DSH allotment, the excess DSH payments to the second hospital may be at the expense of the first hospital, which could otherwise receive these DSH dollars.”

CMS addressed comments from several healthcare stakeholders that the rule could impact additional costs affecting Medicaid, financial impacts of the rule, and the appropriate application of DSH funds.

Several commenters suggested that CMS should include certain physician and clinic service costs, provided by hospitals, when calculating the uncompensated care costs as defined in the new rule.

The commenters also suggested including provider contributions toward non-federal share of DSH payments through healthcare taxes, and similar channels, that affect their Medicaid net payments. CMS agreed with both comments.

“The proposed rule did not address whether certain costs of physicians and clinic services provided by hospitals and provider contributions toward the non-federal share of DSH payments should be included for purposes of calculating the hospital-specific limit,” the final rule reads.

“Therefore, this rule only addresses the scope of inpatient and outpatient hospital costs that can be included for Medicaid DSH purposes.”

CMS states that because the rule only affects limits, and does not change existing policies for Medicaid distribution, there will not be any likely economic effects.

“We are not preparing a final regulatory flexibility analysis because we have determined, and the Secretary [HHS] certifies, that this final rule will not have a significant economic impact on a substantial number of small entities,”CMS stated in the federal register.

Multiple commenters mentioned that the rule is harmful to children’s hospitals, rural facilities, and similar healthcare facilities because the Medicaid DSH program was designed to help these institutions. CMS disagreed with the commenters.

“The policy reflected in the proposed rule does not disproportionately harm children's hospitals and safety net hospitals,” CMS said. “We believe this rule ensures the appropriate allocation of Medicaid DSH dollars to those hospitals that have a true financial shortfall related to serving Medicaid eligible individuals.”