Payment system must keep up with DSH reductions | Behavioral Healthcare Executive Skip to content Skip to navigation

Payment system must keep up with DSH reductions

May 28, 2014
by Brian Albright
| Reprints
Integration will change payment methods

Looming Medicaid Disproportionate Share Hospital (DSH) payment reductions may pose another funding crisis–in addition to the persistence of the Medicaid Institutions for Mental Disorders (IMD) Exclusion– especially for non-expansion states. The Affordable Care Act uses DSH fund reductions as an offset to help fund coverage expansion overall.

Implementation of the DSH cuts has been delayed until the beginning of fiscal year 2016, and reductions will be drawn out through 2024. The shift means that in 2016, hospitals will face double DSH reductions in that first year, totaling $1.2 billion cumulatively.

"Eventually, the hospital industry in the states that have rejected Medicaid expansion are going to be screaming because they aren't going to be paid for the charity care that DSH funds cover," says Ron Manderscheid, executive director of the National Association of County Behavioral Health and Developmental Disability Directors. "They are very active politically, and they stand to lose billions if their state doesn't expand Medicaid."

Those providers will be stuck with dwindling DSH payments and no new payer source to make up for it.

Even so, moving money around isn’t a complete solution either. In Michigan, the state legislature reduced general funds for mental health services in anticipation of cash arriving via the Healthy Michigan Medicaid program. But those funds won't cover services for populations that are not Medicaid eligible. At the county level, that has led to cuts to programs that provided services like housing and food.

Long term, the ongoing integration of behavioral health into the larger healthcare delivery system and primary care in particular will require a rethinking of the funding model.

"As services are integrated, you can assume the possibility that we'll see the same thing on the financing side," says Mohini Venkatesh, vice president, practice improvement, National Council for Behavioral Health. "Our field has long sought the opportunity to be part of the healthcare system, and now we are seeing the true effects of that. This is drastically shifting the system."