New CMS Proposal Will Reduce Hospitals’ DSH Allotments: Less Incentive for Hospitals to Treat the Uninsured

The Centers of Medicare and Medicaid (CMS) put forth a new proposal setting forth aggregate reductions to state Medicaid disproportionate share hospital (DSH) allotments from 2014 – 2020.

First of all, what is DSH? (DSH) are payments to hospitals that serve a significantly disproportionate number of low-income patients; eligible hospitals are referred to as DSH hospitals. (Click here for a link to DSH hospitals in NC). States receive an annual DSH allotment to cover the costs of DSH hospitals that provide care to low-income patients that are not paid by other payors, such as Medicare and Medicaid.  For example, in fiscal year 2011, North Carolina received $295,314,187.00 in DSH allotments. Almost 300 billion in allotments would make any hospital less reluctant to treat the uninsured.

Think of DSH this way, in North Carolina, according to a recent article in the News and Observer, we have approximately 1.5 million uninsured in NC, roughly 1 out of every 5 NC residents. When a person without health insurance gets sick, they cannot go to the doctor (since they do not have doctor because of not having insurance).  Instead, the uninsured are forced to go to the emergency room.

Now think of hospitals as a business, which is what they are. We all would like to think that hospitals are there for everyone.  That everyone is welcome in a hospital.  (At least, I would like to think that).  However, the reality is that hospitals are a business.  Each procedure, each test, each exam costs a certain amount of money. If the person receiving the service cannot pay, what incentive does a hospital have to continue to service the person?

Well, there ARE federal requirements to treat.  For example, under the Emergency Medical Treatment and Labor Act (EMTALA), part of the 1985 Consolidated Omnibus Reconciliation Act (COBRA), a hospital cannot turn away or unnecessarily discharge any uninsured person with an emergency condition.  Anyone who shows up in a hospital emergency room will be screened to determine the severity of his or her condition. If the condition is deemed an emergency, the hospital is obligated to stabilize the patient.  But for non-emergency conditions, what incentives do hospitals have to continue treatment for non-emergency condition? Hence, the DSH payments.

Going back to CMS’ proposed DSH reductions, the thought process behind these aggregate reductions is (in my opinion): Because of Medicaid expansion under the Affordable Care Act (ACA), more people with be insured by Medicaid and less uninsured people will be admitting themselves into ERs.  In other words, if a state opted to expand Medicaid, then, supposedly, more people are insured; thus the hospitals need less DSH.

But what about the states that did not opt to expand Medicaid (i.e., North Carolina)?

CMS’ proposal sets forth 5 factors to determine each state’s DSH allotments. Whether the state expanded Medicaid will be considered.  The proposal states, in pertinent part:

“Consequently, hospitals in states implementing the new coverage group [Medicaid expansion] that serve Medicaid patients may experience a deeper reduction in DSH payments than they would if all states were to implement the new coverage group.”

Here are the official statutory factors:

  • Factor 1 – Low DSH Adjustment Factor (LDF)
  • Factor 2 – Uninsured Percentage Factor (UPF)
  • Factor 3 – High Volume of Medicaid Inpatients Factor (HMF)
  • Factor 4 – High Level of Uncompensated Care Factor (HUF)
  • Factor 5 – Section 1115 Budget Neutrality Factor (BNF)

The proposal also provides an illustrative chart of potential reductions.  Here’s the warning: “Table 1 and the values contained therein are provided only for purposes of illustrating the application of the DHRM and the associated DSH reduction factors described in this proposed rule to determine each states’ DSH allotment reduction for FY 2014. Note that these values do not represent the final DSH reduction amounts for FY 2014.”

Here’s the illustrative chart: (which can also be found here since the below picture is so small…or I need new contacts)


So how much will North Carolina hospitals’ DSH allotments go down under this CMS proposal?

According to the Kaiser Foundation, North Carolina’s hospitals’ DSH payments will be reduced by $500 million in FY 2014, $600 million in FYs 2015-2016, $1.8 billion in FY 2017, $5 billion in FY2018, $5.6 billion in FY2019, and $4 billion in FY 2020.

Possible consequences?

Hospitals Treat Less Uninsured:  It is only logical that if a hospital will no longer be allotted as much money to treat uninsured patients, the hospitals will want to treat less uninsured.  One possible way a hospital could legally limit the number of uninsured is to determine less conditions as an “emergency condition.”  Obviously, what constitutes an “emergency condition” has some subjective wiggle-room.

Less Hospitals Opt to be DSH Hospitals: If the amount of money is so greatly reduced so as NOT to provide an incentive for a hospital to treat uninsured, some hospitals may opt to not meet the standard of a DSH hospital.

More Transfers for the Uninsured: If hospitals are not receiving the incentive to treat uninsured, hospitals may transfer the uninsured patients to other hospitals in instances in which the hospital would not transfer an insured patient.

You can provide your comments to CMS regarding this proposed DSH reduction.

Send comments to:  Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-2367-P, Mail Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850

About kemanuel

Medicare and Medicaid Regulatory Compliance Litigator

Posted on May 13, 2013, in Affordable Care Act, CMS, CMS Proposal, DSH Allotments, DSH Hospitals, Federal Law, Health Care Providers and Services, Hospitals, Legal Analysis, Legislation, Medicaid, Medicaid Costs, Medicaid Expansion, NC DHHS, North Carolina, Reduction in Medicaid Payments, Uninsured and tagged , , , , . Bookmark the permalink. 3 Comments.

  1. Is this happening in anticipation of the affordable care act going into effect, where is it presumed that more people will not be uninsured?

  1. Pingback: New CMS Proposal Will Reduce Hospitals' DSH … – medicaidlaw-nc | Lavanaut

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