Local hospitals stand to lose millions in federal funding for uncompensated care when the Affordable Care Act's cuts in Disproportionate Share Hospital (DSH) reimbursements go into effect in July. The bill established the cuts based on a mandated expansion of Medicaid, the federal-state health care program for low-income residents, which would increase the number of insured.
In Virginia, according to a study commissioned by the Virginia Hospital & Healthcare Association, expansion would extend coverage to an estimated 400,000 of the state's 1 million uninsured and would bring in $10 billion in federal funds over five years.
However, if Virginia chooses not to expand Medicaid coverage — an option made possible by the 2012 U.S. Supreme Court ruling on the ACA — the state could leave the numbers of uninsured unchanged while hospitals receive drastically reduced federal payments for their care.
For Bon Secours, whose three hospitals in Hampton Roads include Mary Immaculate Hospital in Newport News, the projected hit in reduced DSH payments will be around $15 million, according to Hampton Roads CEO Michael Kerner. Overall, the system would lose $30 million from not accessing the increased funding provided by an expansion in Medicaid. "We would still be treating those patients," said Kerner, who's also an advocate for reform to contain costs.
Reform can only happen, he explained, in conjunction with expansion of the program. "If we don't expand, then we won't have flexibility to experiment with pilots," he said, citing the federal 1115 waiver that allows states to tailor Medicaid plans to their state's health care goals. "Reform has got to happen no matter what. The money will help cushion the transition. … If you leave $10 billion on the table, it's gone. You don't get it back. Those dollars get spread out among other states."
Potential reforms include providing greater access to primary and home care to patients to manage their health and keep them out of more expensive in-patient care, and a dual-eligible (Medicare and Medicaid) system of managed care to participate in shared savings. Virginia Secretary of Health Bill Hazel has indicated support for these reforms, along with seeking flexibility in benefits, improvements in care coordination and personal lifestyle responsibility. "These would 'bend the cost curve' so costs are not going up as fast or are coming down," Kerner said.
For the Children's Hospital of the King's Daughters in Norfolk, though unaffected by Medicaid expansion, the associated cut in DSH payments is critical. The region's only freestanding children's hospital currently receives about one-quarter of all the DSH funds that the federal government funnels to the state. "For us, $19 million is at stake," said Jim Dahling, president and CEO of CHKD Health System. "It's the low-hanging fruit for cuts because of the assumption that there will be fewer uninsured," he said, noting that the proposed expansion doesn't apply to Virginia's children. "We're not going to see an upturn," he added. The projected losses for CHKD start at $500,000 in July, grow to over $1 million in 2014, and increase progressively each year as the DSH cuts ramp up. "Federal regulators have not disclosed the formula. We have to consider all $19 million at risk," said Dahling.
A bill currently before the legislature, co-sponsored by Del. Chris Jones and state Sen. Tommy Norment, would compensate for the loss by shifting the funding source and including CHKD in indirect medical education (IME) payments that are more stable and not subject to cuts. Dahling described the legislation as "budget neutral," in that it would not increase costs to the state.