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Medicaid Policy Changes Tied to ACA Could Impact Hospital Financial Viability

Posted on June 21st, 2016


Policy changes tied to Medicaid are threatening the financial viability of some hospitals to stay in business, the Kaiser Family Foundation, or KFF, said in a brief published Thursday. Because states have a great deal of discretion to set Medicaid payment rates for hospitals and other healthcare providers, those payments have historically been below costs which results in payment shortfalls. But because of the Disproportionate Share Hospital Payments, which usually boosts hospital payment rates, many hospitals receive Medicaid payments that may be in excess of cost.

But the Affordable Care Act, or ACA, is changing the hospital payer mix, especially in states adopting Medicaid expansion, where studies have shown a decline in self-pay discharges and a corresponding increase in Medicaid discharges. The ACA also calls for reductions in DSH payments, as well as other federal policy changes that are focused on limiting the use of supplemental payments.

The KFF brief suggests these changes may have important implications for Medicaid payments to hospitals, concurrently while Medicaid is becoming an ever-growing share of hospital payer mix. This is especially true among safety net hospitals that serve a disproportionately high number of Medicaid and uninsured patients.

The overall impact of changes to supplemental payments also will depend on how much states adjust base payment rates to compensate for changes to supplemental payments. KFF also states that while states’ reliance on supplemental payments as a source of revenue for hospitals has increased, lack of data and transparency on states’ use of supplemental payments makes federal oversight of these programs difficult.

Federal officials are now working to reform how states use supplemental payments in managed care and waivers, as well as the use of provider taxes.

The report also said that better data and monitoring of the effects of coverage changes — as well as policy changes related to the supplemental payments — will help to better evaluate hospitals’ financial well-being.


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