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In the final A Disproportionate Share episode, NYC Health + Hospitals's Michael Shen discusses why supplemental payments for safety net hospitals might be at risk and looks at policy approach that could bolster the safety net.
Health Affairs Pathways explores the avenues and alleyways of the health care system through a variety of storytelling – from investigative journalism and health policy explainers to long-form interviews.
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00;00;00;15 - 00;00;16;05
Michael Shen
In the last episode, I brought us through the complicated world of safety net hospital financing and talked about the disproportionate share hospital payments or DSH payments. In this episode, we'll talk about why those payments might be at risk.
00;00;16;12 - 00;00;20;25
Terri Sewell
Several essential programs for Alabama's hospitals expired last Saturday.
00;00;20;26 - 00;00;26;28
Michael Shen
This is Alabama Congresswoman Terri Sewell addressing the Ways and Means Committee back in 2017.
00;00;27;01 - 00;00;34;25
Terri Sewell
Cuts to DSH programs went into effect, which cost Alabama hospitals $56 million in federal funding next year.
00;00;34;26 - 00;00;52;26
Michael Shen
What happened was that Congress had missed the deadline to delay cuts to the DSH program, threatening not just Alabama, but hospitals across America. The good news, soon after this recording, they ruled once again to delay those cuts. But the threat still looms large.
00;00;52;29 - 00;00;59;00
Terri Sewell
Providers in Alabama and across this country cannot continue to cut their way to prosperity or profitability.
00;00;59;21 - 00;01;08;22
Michael Shen
Today, we'll discuss real policy challenges to safety net hospital funding, and we'll look at policy approaches that could help bolster our safety net.
00;01;12;28 - 00;01;40;00
Michael Shen
Welcome to “A Disproportionate Share: The Story of America's Safety Net Hospitals And How We Pay For Them” from Health Affairs. I'm Michael Shen, a primary care doctor in New York City's public hospital system. Today, the third and final episode in the series, “Sustaining Our Safety Net”.
00;01;43;00 - 00;02;10;14
Michael Shen
There's a looming threat to safety net hospitals that has been on the horizon for several years now. And that's the DSH payment cuts. Remember that dish payments are one of the major Jenga blocks in that unstable tower of supplemental funding that pays for our safety net hospitals. And just to remind you how confusing it can get, remember that Medicare and Medicaid each have their own DSH programs which are structured differently.
00;02;10;27 - 00;02;37;03
Michael Shen
Medicaid DSH amounts to more money overall, making up about $14 billion of federal spending in 2020. By comparison, Medicare DSH was about $4 billion. There are plans to cut both DSH streams. But if DSH is so vital for hospitals, why do we plan to cut it? Well, the cuts were written into the Affordable Care Act, or the ACA, back in 2010.
00;02;37;15 - 00;02;44;27
Matt Siegler
In the Affordable Care Act, the country expanded access to health insurance for more people than in 50 years.
00;02;45;02 - 00;02;58;17
Michael Shen
This again is Matt Siegler, senior vice president of Managed Care and Patient Growth in my hospital system, New York City Health and Hospitals. He says insuring more people through the ACA was a critically important step for U.S. health care.
00;02;58;26 - 00;03;10;01
Matt Siegler
And the theory was that with more people being insured, the institutions that typically receive DSH payments wouldn't need as many DSH payments because more people were insured.
00;03;10;11 - 00;03;26;23
Michael Shen
The fewer uninsured people there are, the less supplemental funding we might need to pay for them. It sounds logical, but there are issues with the way the policy is structured. I'll bring back Beth Feldpush, health policy expert from America's Essential Hospitals to explain.
00;03;26;27 - 00;03;54;16
Beth Feldpush
The Affordable Care Act had cuts to both Medicare and Medicaid DSH, but the Medicaid and Medicare DSH cuts were structured differently. So the Medicare DSH cuts were structured in a way that the level of the cut was dependent on the national uninsurance rate, which has some logic behind it. If you have fewer uninsured patients, then you need fewer dollars tied to supporting that unreimbursed care.
00;03;54;16 - 00;04;01;08
Michael Shen
But Medicaid DSH, which would be a larger chunk of money, would get cut in really big ways just across the board.
00;04;01;19 - 00;04;13;19
Beth Feldpush
The way that the Medicaid DSH cuts were worded in the law, though, it wasn't dependent upon anything. They were just put into place at a certain level and the levels are fairly unsustainable.
00;04;13;26 - 00;04;25;22
Michael Shen
Just how unsustainable are these cuts? Well, they're pretty high and they've gotten higher every time they're delayed. In fact, Beth says that we're building up to a pretty frightening cliff of DSH cuts.
00;04;26;01 - 00;04;47;25
Beth Feldpush
Each year that they come up, I think Congress kind of wisely sees that there is still very much a need for those supplemental payments to help support the safety net system. And so they have continued to just delay and delay and delay the cuts. Now, unfortunately, what's happened in delaying them, we have now built up quite a cliff of those cuts.
00;04;48;13 - 00;05;11;24
Beth Feldpush
Initially, the first year of cuts in 2014 was going to be $500 million. But now the next year that the Medicaid DSH cuts would go into effect, which would be 2024, the cuts would begin at a level of $8 billion. That is two thirds of all federal Medicaid DSH dollars would be wiped out in a single year.
00;05;11;26 - 00;05;37;08
Michael Shen
That's a lot of money that won't be going to hospitals and the patients they serve. But I'm kind of wondering, was the ACA actually successful in offsetting some of the costs for caring for the uninsured? That is, do safety net hospitals still need as much DSH? The short answer, I think, is yes, but I'll explain. The Affordable Care Act did improve the uninsurance rate by a lot, actually.
00;05;37;12 - 00;06;06;18
Michael Shen
When I look back at the number, it's really striking. Before the ACA kicked in, in 2014, around 17% of Americans had no insurance. That's one in six people. By 2018, that number had dropped by half to about 8.5%. And with policy changes related to the pandemic, it's now 8% in 2022. So what about uncompensated care costs? Are hospitals seeing some relief there?
00;06;07;05 - 00;06;34;16
Michael Shen
One study saw a 1% drop in uncompensated care as a percentage of hospital operating costs. That single percentage point might mean hundreds of thousands of dollars for a hospital. So in this way, the ACA did result in some relief for hospitals. But there are important caveats that, for me, drive home the point of why these numbers don't actually change the vital need for DSH payments for safety net hospitals.
00;06;34;23 - 00;06;58;09
Michael Shen
First is the fact that I think the ACA’s effect on the insurance landscape has largely run its course, at least in Medicaid expansion states. And you can see it in the numbers. The uninsurance rate hasn't really changed that much since 2018. And in the coming years, just as DSH cuts are about to hit, I predict we'll see the uninsured rate rise again for the low income populations that safety nets serve.
00;06;58;21 - 00;07;22;00
Michael Shen
That's because there are actually a lot of pandemic related policy changes that protected Medicaid members from losing coverage. Those so-called continuous coverage provisions, they're going to end when the public health emergency ends. So we might see a sharp drop in Medicaid coverage. The second reason I think DSH payments are still essential in full is that they pay for more than just uninsured care.
00;07;22;11 - 00;07;28;23
Linda DeHart
And that kind of goes back to conflating this with just being a program for the uninsured.
00;07;28;25 - 00;07;53;19
Michael Shen
That's Linda DeHart, Vice President of Finance at New York City Health and Hospitals, where I work. She says that Congress hasn't recognized the true role of DSH payments. There's this misconception that DSH funding is only used to cover the cost of uninsured patients when, in fact, a lot of what it really covers is loss on Medicaid, because at baseline, Medicaid pays really low rates.
00;07;54;03 - 00;07;57;11
Michael Shen
And that was a health equity issue that I had talked about in the last episode.
00;07;57;14 - 00;08;21;06
Linda DeHart
But the loss on Medicaid patients is quite significant for high Medicaid hospitals. And that kind of gets overlooked. They're so far out of whack with what costs are, and that's still not pegged to inflation. So I think the proportion of hospital need coming from Medicaid rather than uninsured, you know, has really, really grown.
00;08;21;12 - 00;08;43;15
Michael Shen
And part of the reason Medicaid rates are still so low is because around the time of the ACA, we had that financial crisis and that decimated a lot of state budgets, resulting in massive cuts to Medicaid. Remember, one of the first things states go to cut in a bind is Medicaid. Medicaid rates were since frozen for about 12 years at those significantly reduced levels.
00;08;43;27 - 00;08;47;18
Michael Shen
And only recently have states started making more investments in Medicaid.
00;08;47;21 - 00;09;02;24
Linda DeHart
In the state, you know, in the most recent analysis that we've seen on hospital fiscal calculations from most safety net hospitals, most of their need is associated with Medicaid patients. You know, maybe 70, 80, 90% of their need is coming from Medicaid.
00;09;03;05 - 00;09;30;18
Michael Shen
To summarize, DSH payments are still vital, despite the fact that there are fewer uninsured people in this country because it was never really only about the uninsured population. DSH props up hospitals with significant numbers of Medicaid patients because Medicaid doesn't pay. Even MACPAC writes that DSH is used, quote, “more generally to support the financial viability of safety net hospitals.”
00;09;31;25 - 00;09;40;02
Michael Shen
So for the time being, cuts are now slated to come into effect in the year 2024. I wanted to know, what do we think is going to happen?
00;09;40;03 - 00;09;50;12
Paula Chatterjee
You know, it is perennially brought up during budget reconciliation, I think particularly in a COVID area, I think there's a lot of hesitation to withdraw funding from hospitals in general.
00;09;50;13 - 00;09;56;16
Michael Shen
And part of the hesitation may also be because states often use DSH funds to meet the needs in other areas.
00;09;56;19 - 00;10;08;27
Paula Chatterjee
The DSH payment program, as a result of states having a lot of flexibility, is being used to plug a lot of potential financial holes for hospitals. That sort of also contributes to this reliance on the program.
00;10;08;28 - 00;10;15;25
Michael Shen
And Dr. Chatterjee tells me that her feeling is that DSH cuts will continue to be delayed in the future.
00;10;16;10 - 00;10;39;02
Paula Chatterjee
So I think there are strong arguments by policymakers, legislators, people who advocate on behalf of hospitals, basically saying that many hospitals are reliant on DSH payments for their financial viability. And I think there's concern that withdrawing payments would, you know, have market consequences given their reliance on these payments.
00;10;39;06 - 00;10;43;23
Michael Shen
So worst comes to worst if DSH cuts were to happen in 2024.
00;10;44;29 - 00;11;09;22
Matt Siegler
They remain very problematic for us if the cuts ever happen, because we continue to serve hundreds of thousands of uninsured patients every year. There is some hope that these extensions become more permanent or more routine. But it remains on our mind. We plan in our multi-year budget that the cuts will happen and that we'll have to make adjustments for them.
00;11;10;21 - 00;11;12;07
Matt Siegler
Those would be painful adjustments.
00;11;12;25 - 00;11;38;24
Michael Shen
In my mind, if I had to imagine, it would be laying off staff, which we're currently already short on, and cutting certain essential services which would strain the safety net and further limit access to people who most need it. So how is Congress approaching the problem of the DSH cuts currently? Well, repeal doesn't look likely yet. An extended delay is more likely.
00;11;39;10 - 00;12;04;03
Michael Shen
But if the cuts do come, the committee at MACPAC has made recommendations about how they could be restructured. Their recommendation, called the health reform reduction methodology, would try to make it so that the cliff is a little less daunting by making the cuts less abrupt than they currently are. It would also address how different states DSH allotments would get cut more fairly.
00;12;04;23 - 00;12;31;22
Michael Shen
Now, this is something I haven't mentioned yet. The fact that DSH allotments are already capped at a state level and they have been since 1992. So you can imagine that as overall health care costs have risen, DSH payments haven't really followed suit in nearly three decades. What's more, if you look at how these DSH caps are distributed state by state, you'll find that there's no rhyme or reason as to why certain states get more than others.
00;12;32;07 - 00;12;58;07
Michael Shen
And Congress actually knows these caps make no sense. MACPAC analyses have consistently shown that DSH allotments do not correlate with uncompensated care burden or any measure of essential care delivered. To put it simply, current DSH caps don't correlate with the intended purpose of the DSH program itself, so they recommend that we take into account these unfair DSH caps when we eventually cut DSH.
00;12;59;16 - 00;13;09;11
Michael Shen
Now, another point of advocacy is to increase some of the limits on DSH at the individual hospital level to give hospitals a little more margin for investment.
00;13;09;15 - 00;13;36;22
Linda DeHart
Something that we are starting to advocate for and partnering with some other safety net hospitals to advocate for is that that limit be allowed to cover more than your loss so that you can build some margin for investment, you know, creating a rainy day fund and expanding services, improving services, because if you're just, you know, barely allowed to cover cost or break even, you know, you're constantly struggling.
00;13;36;22 - 00;13;44;13
Linda DeHart
So we really think it's important that safety net providers be allowed to have some margin to invest in their system.
00;13;45;21 - 00;14;16;01
Michael Shen
At this point, I want to take a step away from DSH, I think we've talked about it enough, and look at some other ways the federal government and states are paying for safety net care. One mechanism I want to talk about involves the health system's movement towards value based purchasing, or VBP. The point of VBP is to shift how hospitals think about the care they provide, specifically a shift away from volume and toward value.
00;14;16;22 - 00;14;40;24
Michael Shen
Let me give you an example. Instead of saying, the more heart failure patients your hospital admits, the more money we’ll give you; you might instead say, well, if the heart failure patients that you do admit actually have better outcomes than the average hospital, we'll give you a bonus. Now, that's exactly what Medicare's hospital readmission reduction program, or HRRP, did when it was started in 2010.
00;14;41;15 - 00;15;10;15
Michael Shen
Specifically, HRRP wanted to reduce hospital readmission rates for heart failure, acute heart attacks and pneumonia, and they did so by financially penalizing hospitals with higher than average readmission rates. Over the years, the program has worked. Readmission rates have declined overall across the board. But for safety net hospitals, there was a problem. They were getting penalized at nearly twice the rate as non-safety net
00;15;10;15 - 00;15;16;12
Michael Shen
Hospitals under HRRP and other VBP programs like it. Now, why is that?
00;15;16;15 - 00;15;43;28
Paula Chatterjee
Not every hospital is starting out at the same baseline. When we look at the patients served by essential hospitals, they have more co-morbidities. They have many more social challenges in terms of what their housing environment looks like, their access to healthy foods. But it's really not a reflection of the care that you're providing. It's a reflection of the systemic inequities that are built into that baseline of the measuring system.
00;15;44;09 - 00;16;09;28
Michael Shen
I know so many patients who work hard to manage their health but might be more worried about being evicted, having to keep multiple jobs, choosing between food on the table and paying for their meds, for example. And as a doctor, I have so little control over these things, but I know they affect their health outcomes. One study even attributed almost 60% of the variation in hospital readmission rates to factors like these.
00;16;10;24 - 00;16;20;03
Michael Shen
And so the good news in 2016, Medicare made changes to ease some penalties toward safety net hospitals through the 21st Century Cures Act.
00;16;20;21 - 00;16;38;22
Paula Chatterjee
Which I think it's been a great step forward to start to chip away at those baseline inequities. And so now hospital readmissions are adjusted based on the percentage of dual Medicare/Medicaid beneficiaries that a hospital pays for.
00;16;38;25 - 00;16;58;00
Michael Shen
So instead of being compared to all hospitals, now hospitals are compared to their peer hospitals, those with similar poverty levels in their Medicare patient populations. The use of these peer groups only kicked in in 2019. So the data is limited, but it does suggest that it's working to level the playing field.
00;16;58;05 - 00;17;08;22
Paula Chatterjee
It's not a bad metric. I mean, it's really a good first step, but it is trying to adjust an inequitable measure on the back end.
00;17;08;25 - 00;17;30;21
Michael Shen
And since then, the National Quality Forum has advocated for the inclusion of social risk factors in the risk adjustment models for pay for performance programs. One study even modeled this kind of enhanced risk adjustment and found that readmissions performance of safety net hospitals would improve and that of non-safety nets would worsen, in effect, leveling the playing field.
00;17;31;20 - 00;17;44;04
Michael Shen
When we take a step back, the mentality of VBP programs ultimately aligns very well with that of safety net systems, and if done right, can really bolster our safety nets.
00;17;44;10 - 00;18;14;05
Matt Siegler
I think overall value-based payment is critically important for saving our hospitals and I think it's the future of financing for safety net hospitals, certainly is for us. We have over 700,000 full risk lives under management here, and it's a critically important way that we stabilize our finances and that we orient the care we deliver around our values and our mission and align our finances with our mission.
00;18;14;22 - 00;18;42;20
Matt Siegler
Because if you think about what safety net institutions do well or should do well, it's to be efficient with limited resources and to employ providers who are really, really committed to a mission and not here to make as much money as humanly possible. And both of those things really connect to being successful in value-based payment. If the programs are structured right and if you work really hard at it.
00;18;43;05 - 00;18;50;25
Michael Shen
Another mechanism that pays for safety net care is a little more innovative and something I want to talk about called the Medicaid waiver programs.
00;18;51;06 - 00;19;09;27
Paula Chatterjee
States also have a lot of flexibility under their Medicaid programs. So there are some exciting programs through state waivers where states can pick a type of service or a patient population where they really want to put more resources into sort of equalizing the system.
00;19;09;27 - 00;19;36;19
Michael Shen
And I just want to note they're called waivers because these programs waive the strict rules around the use of federal dollars so that the money can be used in creative ways. Usually that means paying for things that the traditional health system wouldn't paid for, like housing navigation and other social services. Some systems have used these waivers to create broad health access programs for their uninsured populations, and a lot of these programs, they take place at safety net hospitals.
00;19;36;25 - 00;19;54;01
Paula Chatterjee
The good side of that is that states can kind of do whatever they want in their Medicaid waiver. The downside of that is that as a state, you have to have the brainpower, the resources to cook up what it is you want to do. So, you know, the federal government could make waiver templates. So, hey, states, do you want to tackle equity?
00;19;54;09 - 00;20;10;20
Paula Chatterjee
Here's a way that, you know, we at CMS would approve this if you kind of laid it out this way, what your program is, what the funding needs are, upfront investments for safety net hospitals. We will approve that quickly. We’ll kind of do that thinking for you, and if you have the interest and your state's share of the funding, let’s do it.
00;20;10;28 - 00;20;33;12
Michael Shen
So thinking up good ways of promoting this kind of innovation and flexibility in our health care system can really pave the way for safety nets to better deliver on their mission. Now, I want to bring us to the conclusion of our series. In mapping out the meaning of the safety net and how we pay for that care,
00;20;34;01 - 00;21;07;26
Michael Shen
I think we really have to think about, going forward, how much do we really value these essential services, and are we willing to put our money behind caring for Americans who are most in need? When I started making this series, one of my main questions was whether my hospital system would ever be at risk of closing like Hahnemann Hospital did in Philadelphia, for example, in comparing the two, you know, I'm from a huge public hospital system that's deeply committed to its mission and we have good state and local support.
00;21;08;11 - 00;21;35;00
Michael Shen
We aren't really likely to close in the same way as a private equity owned hospital like Hahnemann did. But at the heart of it, we both serve safety net populations and safety net hospitals, whatever cloth they're cut from, face similar financial challenges, usually living on the edge with razor thin margins, collecting that Jenga tower of supplemental payments through complicated mechanisms.
00;21;35;24 - 00;21;39;21
Michael Shen
It seems like a tough existence to me.
00;21;42;24 - 00;22;24;22
Michael Shen
You've been listening to “A Disproportionate Share” from Health Affairs. Again, I'm Michael Shen. Thank you for listening. Special thanks to executive producer, Jeff Byers; senior editor, Kathleen Haddad; and my Health Affairs podcast co-fellow, Tracy Fasolino. Music was composed and produced by Saul Guanipa. I want to thank everybody whose voices and expertise supported this project: Dr. Paula Chatterjee, Matt Siegler, Linda DeHart, Beth Feldpush, Professor Brietta Clark, Sara Rosenbaum, and Dr. Mitch Katz.