CHICAGO — Scheduled cuts in Medicaid and Medicare under the new federal health care law may pressure state governments that could be forced to replace some of those dollars, Moody's Investors Service said in a report Thursday.
States that do not opt to expand Medicaid as provided under the new law, as well as large urban safety-net hospitals, are the most likely to feel the pressure from the reductions, analyst said.
The payment reductions are one in a series of challenges hospitals are bracing for as the Affordable Care Act takes effect in 2014. The new law assumed that because the uninsured population would fall, hospitals would need less so-called disproportionate share hospital payments, which are Medicaid and Medicare funding for hospitals that cover large numbers of uninsured patients.
But a 2011 Supreme Court ruling that made Medicaid expansion provision optional means that states that do not plan to expand Medicaid will continue to see large numbers of uninsured patients. The hospitals, however, will still face the scheduled DSH reductions.
"States that opt out of the expansion will have to choose whether to compensate for the shortfalls with their own funds or leave hospitals to absorb the costs which will increase rating pressure on the hospitals," Moody's said in its report, "Reduction of Disproportionate Share Hospital Payments a Looming Challenge for States and Hospitals."
"States that choose to fund uncompensated care costs themselves could face budgetary strain," analysts said. "Negative rating implications will depend on the magnitude of these additional costs, the extent to which they cause budgetary strain, and how each state chooses to address this challenge."
Medicaid DSH payments will be cut 50% by 2019, with cuts starting Oct. 1, 2013. Medicare DSH payments will be reduced by 75% starting in 2014, but hospitals that still treat large numbers of uninsured patients will be allowed to apply for additional federal funding.
For states that opt to expand Medicaid, the drop in uninsured patients should offset the DSH cuts, Moody's said.
Governors in 14 states have so far recommended against Medicaid expansion, with three additional states leaning against expansion and five undecided, according to Moody's.