Healthcare Executive - September/October 2013 - 58

Public Policy Update

ACA Payment Changes
for Medicare and
Medicaid
Robert Cunningham

Disproportionate share hospital cuts attract
attention.

Many of the Affordable Care Act’s payment changes for Medicare and
Medicaid were spelled out in proposed
rules issued in April and May, and have
since been under discussion by policymakers and stakeholders through the
comment and dialog process. A flurry
of ACA provisions affect Medicare
inpatient payment. Disproportionate
share hospital payments in both
Medicare and Medicaid are substantially
reduced on the theory that ACA coverage expansions will ease the burden of
uncompensated care. With uncertainty
still surrounding the extent of the expansions, the DSH payment cuts in particular have attracted attention.
The proposed rules reflect continuing
downward pressure from public and
private payors alike on hospital reimbursement, and the effect varies widely
across different types of institutions
and is not well captured by national
averages. But it is worth noting that
some industrywide data suggest many
hospitals seem to be doing an effective
job managing their financial health,
making efficiency gains and improving quality as payors now demand.
To understand where all this is
heading, it helps to review what has
been happening the past few years.
According to the Medicare payment
Advisory Commission, Medicare

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SEpT/OCT 2013

inpatient costs per case grew just 0.4
percent faster than inflation (the market basket index) between 2009 and
2011, the most recent dates available.
That spending slowdown is consistent
with a flattened cost curve across the
health sector in those years, at least in
part attributable to the recession,
which officially ended in June 2009,
according to the National Bureau of
Economic Research, but the economy
is still in a slow recovery.
But some analysts now believe that a
larger part of the spending slowdown is
a result of structural factors that could
persist through the economic recovery.
These include: the growth of spending
on imaging and pharmaceuticals has
eased; higher cost-sharing levels have
curbed demand for elective surgery
and imaging, among other services;
and, most intriguingly, increased hospital efficiency indicators suggest that
some recent efforts to improve provider
performance have been successful. In
addition, readmission rates among
Medicare patients appear to be responsive to announcement of new penalties;
30-day mortality rates in Medicare
declined in 2011; and hospitalacquired infection rates among
Medicare patients are down significantly across a broad front, according
to a study by Harvard University economists David Cutler and Nikhil Sahni

titled “If Slow Rate of Health Care
Spending persists, projections May Be
Off By $770 Billion.”
Recent trends in Medicare provide further evidence of resilience in the hospital
sector. For example, inpatient volume
declined slightly in 2011, but outpatient
volume continued to grow by a cumulative total of 33.6 percent from 2004 to
2011 and higher for surgical services;
and more new acute-care hospitals
opened (18) than closed (8) in 2011.
Hospitals’ overall Medicare margins
went up slightly between 2008 and 2010
but were still a negative 4.7 percent,
which worsened to negative 5.8 percent
in 2011 for recovery of overpayments
due to prior documentation and coding
changes. But all-payor margins stood at
6 percent in 2010 and 2011, a 20-year
high. These results, however, vary widely
across different types of hospitals.
DSH Payments
Medicare disproportionate share hospital payments in 2011 were about
$11 billion, or 7 percent of all payments to short-stay acute-care hospitals. Well before the ACA, MedpAC
analysts had concluded that only 25
percent of these payments were
“empirically justified” by the higher
costs of caring for more low-income
patients and that “DSH payments
were not well targeted at hospitals
with high uncompensated care costs.”
But the proximate justification for
ACA DSH cuts detailed in this year’s
proposed rules were projected coverage increases from the Act’s Medicaid
expansions, insurance exchanges,
subsidies and individual mandate.
Taking into account states that opt out
of Medicaid expansion pursuant to the
2012 Supreme Court ruling, the
Healthcare Executive - September/October 2013

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