Doc fix would delay Obamacare Medicaid cuts. That’s good news for non-expansion states.


New legislation providing a patch to Medicare physician payments also includes a one-year delay of scheduled Medicaid cuts to hospitals serving low-income patients. That’s especially good news for hospitals in states that haven't expanded Medicaid.

Just for starters – the broad purpose of the "doc fix" legislation is to avoid a sharp drop-off in Medicare payments scheduled for March 31. Provisions of the House bill could still change, but this bill was the product of House and Senate negotiations. Speaker John Boehner said the House will vote on it tomorrow and that the Senate will take it up quickly after that.

Within this doc fix is a new delay to Medicaid cuts ordered by Obamacare. These are specifically cuts to Disproportionate Share Hospital payments, which go to hospitals with the highest levels of uncompensated care.

Medicaid DSH funding, which was $11.3 billion in 2011, was intentionally ratcheted down under the Affordable Care Act because the law was eventually supposed to expand coverage to about 30 million people. That means less uncompensated care for hospitals, so less funding would be necessary.

The annual cuts were supposed to start at $500 million in fiscal year 2014 before reaching $4 billion in the 2022. Then the 2012 Supreme Court decision happened, making the Medicaid expansion voluntary. There’ll be a greater uninsured population than the law’s drafters originally imagined because just 26 states and Washington, D.C., have joined the program so far.

For hospitals in states that haven’t expanded Medicaid, the impact of DSH cuts would be worse. They wouldn’t benefit from the federal funding for the expansion, while they’d be getting less money to care for their uninsured population.

The 2014 budget deal signed by President Barack Obama pushed back the DSH cuts until the start of the 2016 fiscal year and instead doubled the amount of reductions the hospitals would face in the first year – about $1.2 billion. This latest legislation delays the start of the cuts to FY 2017 and tacks on a year at the end.

An important caveat: The Medicaid expansion would still give the hospitals much more funding than the  Medicaid DSH program does. But this delay would soften the blow a bit for hospitals in non-expansion states.

America's Essential Hospitals, which represents safety net providers, said the additional delay would be good for all of its members.

“We know that coverage expansion is going to take some time to ramp up, even in states that are expansion states,” said Beth Feldpush, vice president of policy and advocacy.

Jason Millman covers all things health policy, with a focus on Obamacare implementation. He previously covered health policy for Politico.
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Jason Millman · March 26