Taxes, fees take bite out of Medicaid DSH payments

Disproportionate-share hospitals (DSHs) couldn’t cover their total costs for treating Medicaid and uninsured patients in 2011 through Medicaid payments, after accounting for taxes and fees paid to local governments.

The analysis, published in the December 2016 issue of Health Affairs, found DSH and other supplemental Medicaid payments accounted for about 25 percent of total Medicaid payments made to those hospitals in 2011. Those facilities were paid, on average, 108 percent of their costs for treating Medicaid patients alone. When factoring in uninsured patients, the number fell to 89 percent.

Two other items, however, took a chunk out of those hospitals’ payments: provider-specific taxes and contributions to local governments that go into a state’s share of Medicaid funding.

According to the analysis, taxes reduced Medicaid payments for DSHs by 4 percent. Local government contributions, which are only made by public hospitals, cut payments by 7 percent.

Across states, there was wide variation in gross Medicaid payment levels and in the effects of provider contributions on net payments,” wrote the study’s lead author, Robert Nelb, senior analyst at the Medicaid and CHIP Payment and Access Commission, along with his coauthors. “Gross payments exceeded costs for Medicaid patients in 31 states. However, when we adjusted for provider taxes and local government contributions, we found that only two states made net payments that exceeded costs for both Medicaid and uninsured patients.”

That separation between gross and net payments should be addressed, even though the data used predates the Affordable Care Act, as uncompensated care under Medicaid may increase as more people are covered through the program.

“As Medicaid enrollment grows, and the program becomes an even larger payer of hospital services, it will be important to monitor changes in the need for and role of Medicaid supplemental payments,” Nelb and his coauthors wrote.