Safety-net hospitals warn of ACA’s uncompensated care crunch

The facilities say a partial Medicaid expansion would mean Congress must revisit cuts to disproportionate share hospital payments under the Affordable Care Act.

By — Posted Nov. 12, 2012

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A safety-net hospital advocacy group is projecting a dire outlook for facilities’ ability to handle uncompensated care costs in the event some states fail to expand their Medicaid programs in 2014 and a scheduled reduction in federal indigent care payments takes effect as scheduled.

The National Assn. of Public Hospitals and Health Systems compiled data from the Congressional Budget Office, the U.S. Census Bureau and the American Hospital Assn., to estimate that all hospitals, including safety-net facilities, by 2019 will face $53.3 billion in cumulative costs beyond what they would have expected to absorb under original projections for the Affordable Care Act.

“Clearly, the report is on target in that if states don’t take up the Medicaid expansion and leave more people uninsured, there’s going to be a need for more uncompensated care. This seems to be a reasonable estimate of what those costs would be,” said Paul Van de Water, senior fellow with the liberal Center on Budget and Policy Priorities in Washington. This is why hospitals have been encouraging states to adopt the full Medicaid expansion, “so they’re not left with more uncompensated care than would otherwise be the case.”

In surveying different types of hospitals, safety-net facilities were projected to incur the highest level of additional uncompensated care costs, said Beth Feldpush, NAPH’s vice president for policy and advocacy. NAPH’s membership comprises 200 facilities representing about 3% of hospitals in the country, but they would take on an estimated 20% of the uncompensated care burden, she said.

Safety-net hospitals already are facing cuts to existing payments and an unsteady regulatory and funding environment in the states. “Amid this uncertainty, safety-net hospitals will see reductions in Medicaid disproportionate share hospital (DSH) payments” of up to $14.1 billion from fiscal 2014 to 2019, the analysis stated.

The DSH cuts were part of a larger deal that was reached during health system reform law negotiations, under which hospitals agreed to roughly $155 billion in Medicare and Medicaid payment reductions in exchange for the expectation of higher numbers of insured patients through Medicaid. The assumption was that the government could afford to decrease the DSH payments because the higher levels of coverage would translate into fewer uncompensated care dollars, Feldpush said.

What disrupted this initial balance was the Supreme Court’s June ruling that states cannot be penalized for not expanding their Medicaid program eligibility to an effective rate of 138% of the federal poverty level. Some states with Republican governors subsequently said they wouldn’t expand Medicaid starting in 2014. As a result, hospitals may end up treating more uninsured individuals than expected who couldn’t enroll in Medicaid, while still receiving fewer federal dollars to support lower-income patients who cannot pay their hospital bills, the analysis stated.

The DSH cuts “are hardwired into the law and are going to go forward no matter how many people get coverage,” Feldpush said. Faced with these reductions, some hospitals are going to have to make tough choices on what services they will be able to keep offering, and whether they will be able to expand care in some of their communities. Many safety-net hospitals are academic medical centers that employ a significant number of physicians. “Certainly any financial impact that happens on the system as a whole will be felt by the physicians who work there, whether it’s the resources they have or how they go about doing their work,” Feldpush said.

CBO in July projected that 6 million fewer uninsured people than expected would gain coverage by 2022 due to some states rejecting an expansion of their Medicaid programs under the Affordable Care Act. NAPH maintains that net figure is even higher, up to 10 million uninsured, if CBO’s latest numbers are compared with data released in 2010, when the law was enacted.

CBO indicated that some of these people shut out of Medicaid might be able to get subsidized coverage through federal or state health insurance exchanges.

Caroline Pearson, a director at Washington consultant firm Avalere Health LLC, could not confirm the estimates in the NAPH report but agreed that safety-net hospitals could suffer adverse consequences in the event some states don’t expand Medicaid and the full DSH cuts still take effect. “We anticipate that this will be a major issue following the election and that some governors may change their positions on Medicaid expansion in response to pressure from hospitals and other providers,” Pearson said.

NAPH made an appeal to Congress to revisit the DSH cuts and work to create a policy that would ensure access to care for all safety-net patients.

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Hospitals’ grip on unpaid care at risk

The American Hospital Assn. defines uncompensated care as the sum of a hospital’s “bad debt” — patient bills that go unpaid — and any charity care it provides. Safety-net hospitals warn that these costs could increase dramatically if some states fail to expand Medicaid and the federal government goes through with plans to lower federal reimbursements for bad debt. Total uncompensated care costs for community hospitals have increased substantially in the last three decades but have remained largely static as a percentage of hospitals’ total costs.

Year Hospitals Uncompensated
care costs
Portion of
total expenses
1980 5,828 $3.9 billion 5.1%
1990 5,370 $12.1 billion 6.0%
2000 4,915 $21.6 billion 6.0%
2010 4,985 $39.3 billion 5.8%

Source: American Hospital Assn. annual survey data, 1980-2010

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