iProtean—The Impact of Medicaid Expansion Opt-Out on DSH Payments

Hospitals that serve a large number of patients who have little or no funds to cover the costs of care, Medicaid patients and Medicare patients on disability have relied on a “disproportionate share” payment from CMS.  The Affordable Care Act (ACA) added new provisions to the formula for calculating this payment to hospitals.  The recent Supreme Court decision that allows states to opt out of the Medicaid expansion makes the calculation of the DSH payment less predictable until guidance is given by CMS.


“Many of the ACA’s provisions were premised on the expectation that states would expand their Medicaid programs to cover all individuals at or below 133% of the federal poverty guidelines,” noted authors Philip and Williams in a recent article in Health Lawyers Weekly.


For the Medicare DSH payments, in states that participate in the Medicaid expansion, a hospital’s DSH percentage should increase, although, in effect, it will be applied to only 25% of a hospital’s DRG payments. Hospitals that treat patients from a state that does not participate in the Medicaid expansion (or only partially expands) will not benefit from an increased DSH percentage.  However, these states may receive a higher additional payment from an “uncompensated care pool”—a sort of backfill that is subject to reductions depending on the size of the uninsured population.


“While the precise impact of non-expansion is uncertain, it seems likely that individual hospitals will receive a different Medicare DSH payment than they would have if all states were required to participate in Medicaid expansion,” the authors wrote.


For Medicaid, the ACA reduced federal Medicaid DSH allotments by $18.1 billion over a seven-year period, beginning with federal fiscal year 2014.  The amount is fixed because Congress assumed that hospitals’ costs for uncompensated care would decrease due to fewer uninsured patients. However, if states opt out of Medicaid expansion, more people will likely remain uninsured, and those assumptions will be undermined.


A state’s decision not to expand its Medicaid program may have far-reaching ramifications, including for hospitals located outside that state. While it is impossible to predict the ultimate impact of non-expansion, DSH hospitals should consider this in formulating their DSH and other reimbursement advocacy efforts, as well as in their financial planning and budgeting.  (M.S. Philip, B.S. Williams.  “Healthcare Reform 
Impact Of States Opting Out Of Medicaid Expansion On Medicare And Medicaid DSH Payments.”  Health Lawyers Weekly, September 21, 2012.)


Financial implications of ACA and more will be covered at the upcoming iProtean Symposium, October 10-12 in San Diego, California.  Also look for new iProtean Finance courses focusing on the financial impact of ACA—coming later this year.



For a complete list of iProtean courses, click here.


iProtean Symposium & Workshop

Mark the Date!! October 10 – 12, 2012 at The Lodge at Torrey Pines, La Jolla, CA. Faculty: Barry Bader, Monte Dube, Esq., Lisa Goldstein, Dan Grauman, Marian Jennings and Brian Wong, M.D. For more information, click here.


For more information about iProtean, click here.