Budget scorekeepers tell us that taxpayers spent at least $600 billion in 2017 to pay for health care services for low-income Americans covered by Medicaid. This public health insurance program is a federal-state partnership that pays hospitals, nursing homes, and health care providers to care for more than 70 million people. That’s 1 out of 5 people living in the United States.
Medicaid dollars are essential for safety net hospitals to stay in business. These hospitals provide charitable care for uninsured and low-income members of their community. For these providers, Medicaid bumps up payments to compensate them for their services.
Last year, this particular funding stream within Medicaid disbursed $19.6 billion to hospitals. It’s called the Disproportionate Share Hospital (DSH) program. The federal government pays $12 billion and the states cover the rest.
Congress created DSH payments four decades ago, setting a funding formula in 1992 that today still guides billions of DSH dollars to eligible hospitals across the country. Nearly 44 percent of U.S. hospitals get DSH payments.
Yet disparities exist between the mission-driven hospitals and others receiving these taxpayer funds. According to the most recent data, the range of payments from this funding pipeline is $1 million to $1 billion each year. A half-dozen states receive nearly half of all the DSH funds. For nearly 30 years, the underlying percentage of these payments has not changed, leaving in place an unfair, grossly outdated, and easily abused system.
When I returned in January as chairman of the Senate Finance Committee, I dished up a big policy plate for the next two years. It includes reducing drug prices, examining nursing home care, expanding trade agreements, increasing retirement savings tools, and much more. DSH payments are another item on the committee’s agenda that will take heavy lifting.
Whenever Congress looks under the hood of entitlement programs, it’s safe to expect a lot of pushback. There’s a lot of sky-is-falling rhetoric whenever Congress brings Social Security, Medicare, or Medicaid to the policymaking table.
When the Affordable Care Act was signed into law in 2010, hospitals and providers were on board to enact $17.5 billion in payment reductions to the DSH. They accepted that reduction because of the savings hospitals would capture from caring for fewer uninsured patients. Other reforms were included in the ACA to recalibrate payment formulas to more equitably distribute DSH dollars to providers serving higher volumes of low-income patients.
That was all supposed to take place starting in 2014 and save taxpayers billions. I’ll give you a wild guess what happened. Congress kicked the can down the road, shirking its fiscal duty year after year. Every detour lawmakers take to avoid reducing DSH payments digs an even bigger hole.
The longer these cuts loom, the harder it will be to fix what’s broken. This worn-out strategy of delay and deny means that starting Oct. 1, states are facing $44 billion in cuts to DSH payments over the next six years.
I like history because it teaches us not to repeat mistakes of the past. Back in 1997, the Medicare Sustainable Growth Rate was put in place as part of the Balanced Budget Act. It was meant to prevent the growth in Medicare spending for physician services from exceeding the growth of the country’s gross domestic product. But because health care spending routinely outpaced GDP growth, which would have resulted in cutting payments to Medicare providers, Congress enacted temporary "doc fix" legislation from 2003 through 2014 to prevent those cuts. It finally passed a solution in 2015, after a decade of uncertainty, that established quality incentives and cost-effective measures to transition to a value-based payment system. If lawmakers had ripped off the Band-Aid earlier, the healing process wouldn’t have been quite as painful.
Let’s not repeat this mistake at the expense of the most vulnerable Americans in our communities. Congress must take definitive steps now and lay down the marker for our safety net providers. Hospitals deserve a clear understanding of the payment schedule so they can plan accordingly when reductions go into effect.
We need three things to get there. First, lasting success will require bipartisan consensus on Capitol Hill and willing partners from states and hospitals. Second, we need a reality check on the outdated DSH formulas that don’t adequately serve 21st-century providers. Third, we need transparency and full disclosure of all public funding that hospitals receive to restore credibility and trust.
Congress needs to act on this issue. Kicking the DSH payments can down the road for another country mile will drive us into the fiscal ditch.