Is the Obama Administration Using DSH Cuts as the "Stick" on Medicaid Expansion?

Up to 75% cuts in Disproportionate Share Hospital (DSH) supplemental reimbursements for Medicaid and Medicare began Oct.1, which is officially the beginning of the fiscal year for the healthcare industry.  It appears that the Obama administration is willing to follow through on these cuts even though the human costs could potentially be very high. 

In an ironic twist, Grady Memorial Hospital faces a $45 million funding loss directly related to a new health care law designed to benefit the hospital.

The result could mean major cuts at Georgia’s largest trauma center, according to Channel 2’s Lori Geary.

Danielle Words is an uninsured hospital patient who uses Grady as a safety net because it cares for thousands of uninsured Georgians.


Thousands more who are treated at Grady would have qualified for Medicaid, but Georgia chose not to expand the health care program.

“If Georgia were to expand, we estimate we’d have an additional 40,000 patients that would be eligible under the new rolled out expansion of Medicaid,” Grady President and CEO John Haupert told Geary.

The Affordable Care Act also cut federal funding for hospitals that care for the poor, like Grady. The intent of the law was to expand Medicaid to offset those losses.

However, the U.S. Supreme Court left Medicaid expansion up to the states and Gov. Nathan Deal decided Georgia could not afford it.

“The impact to Grady when it’s fully implemented will be a loss of $45 million a year in funding,” Haupert said.

The loss of funding means the hospital must prepare to cut clinical services.

This is a big deal!  Here’s what is happening…

DSH is a supplement added to Medicare and Medicaid reimbursements to help hospitals recoup their costs for indigent patients.  Under the structure of Obamacare, with an individual mandate in place and Medicaid expanded, the number of indigent patients should decrease, therefore decreasing the need for DSH reimbursements.  The decision made by SCOTUS that allowed states to opt out of Medicaid expansion disrupted these plans.  Rather than alter course (which apparently was being considered at one point), the Obama administration has made the decision to follow through with these DSH cuts. 

CMS advised that “For the years covered by this rule (FY 2014 and 2015), state decisions to expand Medicaid will not affect the amount of reduction in DSH allotments.” Therefore, in states such as Texas, that have indicated they will not expand Medicaid, hospitals may lose Medicaid DSH funds while not seeing an increase in individuals covered. Absent congressional action including passage of the DSH Reduction Relief Act of 2013 (H.R. 1920), which would delay DSH cuts for two years, the reductions in federal DSH funding will take effect October 1. However, CMS will revisit the methodology and promulgate new rules to govern DSH reductions in FYs 2016 and beyond. (emphasis mine)

Based on the comments above, it appears that CMS is willing to challenge SCOTUS on the ruling that prohibits DHHS from withholding Medicaid funds in what could easily be viewed as an act of retaliation against states that do not expand Medicaid. 

DSH usage varies from state to state.  Information pertaining to individual state usage of DSH can be found at this link.   There is a lot of money involved in this.  It is likely that we could have some states who will give in and conform to Medicaid expansion rather than see the high human costs in their state. 

It appears that this may be the intent of the admin in continuing to pursue this course rather than coming up with an alternative. 

I hope Republicans get out of ahead of this one and explain to the public exactly what is taking place and why.