Expanded Medicaid means greater choice for patients, but also the reduction of bulk funding payments from the federal government to safety net hospitals that serve the poor.

The Affordable Care Act (ACA) was designed to get more people covered by private health insurance plans and federal Medicaid insurance for the poor. With more people covered, the law allows the government to decrease other forms of federal funding, including payments known as disproportionate share hospital (DSH) allotments given to safety net hospitals that care for large numbers of poor and uninsured patients.

“DSH was created since hospitals that serve a disproportionate share of low income patients tend to incur higher than average costs,” said Kathleen Cain, senior vice president and CFO of the UCSF Benioff Children’s Hospital Oakland. Low-income patients tend to be sicker and more costly to treat, and hospital staffing levels in safety net hospitals are often higher due to the need for more specialized staff like case managers, interpreters, and eligibility workers.

Before Jan. 1 of this year, Medicaid was generally limited to low-income children, pregnant women, parents of dependent children, and the disabled—those with barriers to obtaining private medical insurance. The ACA expands the pool of those eligible for Medicaid to all individuals under the age of 65 with incomes up to 133 percent of the federal poverty level. For a family of four, that’s up to an annual income of $31,721. For an individual, that’s up to $15,521.

The Supreme Court ruled that expanding Medicaid eligibility under the ACA is optional for U.S. states. 24 states have not expanded Medicaid, and some people who are eligible for Medicaid do not sign up, leaving a gap between what the hospital spends to care for patients and what they receive back from insurers and the government. Care that hospitals offer and are not reimbursed for is called uncompensated care.

California has decided to expand Medicaid coverage, but even in this best-case scenario, DSH reductions could still hit California’s safety net hospitals with $1.38 to $1.54 billion in uncompensated care costs, report researchers from the University of California, Los Angeles, and Virginia Commonwealth University in a study published earlier this month in Health Affairs.

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Reductions in DSH payments under the ACA have been delayed until 2017. That three year buffer provides time for states to expand their Medicaid programs, and for institutions to look for other supplemental funds.

California pediatric hospitals, like UCSF Benioff Children’s Hospital Oakland, typically do not have much uncompensated care because families, children, and pregnant woman tend to be covered by state Medi-Cal or federal Medicaid. As of May 31, 2014, 72 percent of UCSF Benioff’s costs were covered by Medicaid. But, “supplemental funding, such as DSH, comprises nearly 25 percent of our total revenue,” Cain said, and any reduction in funding will affect the hospital’s bottom line.

“Any decrease in supplemental funds is of concern. We already look for every opportunity to contain costs through efficiencies,” Cain added. “All patients benefit from the receipt of DSH funds. They allow us to keep programs open to all patients.” A significant decrease in DSH funds could cause safety net hospitals to close programs or increase philanthropy to maintain those services.

While the numbers for fiscal year 2014 are preliminary, federal Medicaid DSH payments will be around $11.6 billion. California, New York, and Texas all receive DSH payments of greater than $1 billion, reports the Henry J. Kaiser Family Foundation. On average, federal contributions cover about 57 percent of the total cost of Medicaid in a year, a congressional research document reports.

For San Francisco General Hospital (S.F. General), a safety net institution that serves the general public, California’s Medicaid expansion means that more patients have the chance to get coverage. “DSH funding is meant to provide some backfill for uncompensated care delivered to the uninsured,” said Rachael Kagan, a spokesperson for S.F. General.

For a hospital the size of S.F. General, which serves 100,000 patients a year on average, covering care requires a patchwork. To compensate for future DSH cuts, the hospital is working to shift patients over to Medi-Cal or Medicaid, along with public health organizations.

“We in San Francisco have had very good experiences with moving patients into Medi-Cal or Medicaid…when the medical extension opened up we were added 10,000 into [those programs],” Kagan said. Since then, 4,000 more individuals have been added city-wide.

When an uninsured patient walks into S.F. General, even with the possibility of enrollment for coverage, medical care always comes first, Kagan said. After care, an individual sees an enrollment specialist or a financial advisor if they meet the criteria for assistance or presumptive eligibility for a federal program, which allows for immediate access to medical benefits.

In terms of staffing in response to ACA, Kagan said the hospital will not be putting more doctors and nurses on the floor in response to DSH reductions. Enrollment specialists and advisors have been added to help enroll more patients in Medi-Cal and Medicaid. When it comes down to it, “DSH should not be viewed in isolation,” she said. “It is one piece in a complex funding stream…many things are changing. There are lots of moving parts, and DSH is just one.”

Ultimately, Kagan said, a patient is a patient regardless of how he or she is covered. “When they were uninsured they were by definition our patients, in some ways they were more our patients,” Kagan said. “The question from us is will they remain our patients. We certainly want them to.”

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