Future DSH payment cuts seem likely, but feds won’t take back funds, says acting HCFA director
Hospitals that have sweetened their Medicare disproportionate share payments by counting some contested days as Medicaid in the calculation will get to keep the money, according to a recent letter from the Health Care Financing Administration (HCFA).
That’s at least through the cost reporting periods beginning on or before Dec. 31, 1999. Beyond that date, it appears that HCFA will tighten the definition of what’s considered Medicaid, effectively ratcheting back disproportionate share hospital (DSH) payments to hospitals with substantial low-income caseloads other than Medicaid.
"We will quickly clarify our Medicare DSH policy in guidance both to our fiscal intermediaries and to hospitals," says an Oct. 15 letter from acting director Michael Hash to Senate Finance Committee Chairman William Roth (R-DE). "We will also provide clarification of our policy to state Medicaid agencies to ensure that data they submit for use in making DSH determinations comport with our DSH formula."
The formula HCFA seems prepared to implement is spelled out in an administration briefing paper prepared for its DSH negotiations with New York hospital officials. In it, HCFA rejected Greater New York Hospital Association’s argument for including Medicaid days used under New York state’s so-called "Home Relief" project, a Section 1115 waiver program.
There is a "clear distinction" between traditional Medicaid groups "enshrined" in the state Medicaid plan and populations covered by Medicaid under Section 1115 waivers, says the HCFA report, with the latter not intended to be included in the disproportionate share calculation. Coverage to optional Medicaid State Plan groups is considered part of traditional Medicaid because it can be implemented or discontinued at a state’s discretion with no federal waiver needed, says HCFA.
In a tacit acknowledgement that some Section 1115 waiver projects have been around long enough to seem like part of the traditional Medicaid program, HCFA says the time-limited nature of waiver projects helps to set them apart "however much such projects may be extended or prolonged in practice."
A billion-dollar sigh of relief
The impact in New York state is as much as $160 million annually, or a total of $1 billion in the six historical cost-reporting years that could be affected, says Jeannie Cross, vice president for communications at the Hospital Association of New York State. Assurances that HCFA would not try to recoup payments already made under an expanded definition of Medicaid gave the hospital association "a billion dollar sigh of relief," she says.
DSH payments, part of a hospital’s Medicare DRG payment, are indexed to a facility’s provision of care to Medicaid patients as well as Medicare patients eligible for Supplemental Security Income. Urban hospitals are particularly dependent upon DSH payments, and in the forefront of fighting to expand the definition of Medicaid days in the DSH calculation.
"Clearly, we would argue the definition should be as expansive as possible and not go into these gradations of low income," says Lynne Fagnani, vice president for finance and reimbursement at the National Association of Public Hospitals and Health Systems in Washington, DC. "If you take a longer view, the purpose of disproportionate share is to recoup the cost of low-income patients. These are all low-income patients," she says.
At issue in Pennsylvania is the inclusion of state-funded "general assistance" days that brings an estimated $60-$80 million annually to 73 hospitals in the state, says Virginia Schierscher, director of health care finance and policy for the Hospital and Healthsystem Association of Pennsylvania. In April, Pennsylvania’s Rep. Phil English (R-Erie) introduced legislation (HR 1529) that would expand the definition of Medicaid days in the DSH calculation to include all days described in an approved Medicaid State Plan.
Even short of legislative changes, the precise formula used to calculate Medicare disproportionate share payments is often litigated and occasionally revised. In February 1997, for example, HCFA bowed to the decision of four U.S. Courts of Appeals to recognize otherwise eligible Medicaid days in the calculation even if the state chose not to pay for such days. Up to that point, the disproportionate share formula did not include days that would have been eligible for reimbursement but for state-specific coverage limitations.
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