President Biden’s Build Back Better (BBB) plan passed in the House but remains controversial in the Senate, and for good reason: It would reduce economic growth, expand federal government and harm the states, and increase the federal debt. It is also filled with unfair spending policies, such as cuts in federal funding to hospitals in states that have not expanded Medicaid, despite these states receiving less hospital funding already.
A new study from Paragon Health Institute analyzes a BBB provision that cuts federal hospital funding. Medicaid has a disproportionate share hospital (DSH) program that sends federal funds to states to compensate hospitals for the free care they provide to uninsured and low-income patients. In the beginning the DSH program sent federal dollars to states and then the states added their portion to the federal money before sending the funds to eligible hospitals to compensate them for caring for people who could not pay.
In the mid-1980s, however, new federal regulation and guidance allowed the states to use financing gimmicks to fund their portion of the payments while still collecting the federal money. One such gimmick discussed in the study is the Medicaid provider tax:
“A state raises funds from a health care provider such as a hospital or nursing home, uses that tax revenue to make Medicaid payments to those providers, obtains federal funds through its Medicaid reimbursement, and then makes those providers whole through higher payments financed entirely by the federal funds.”
As a result of these gimmicks federal DSH spending rose rapidly. To combat the rising spending Congress capped DSH payments in 1992. This cap essentially locked in the level of DSH funding states received, meaning the states that employed the gimmicks to raise their DSH funding prior to 1992 have received more funding than states that rejected the gimmicks ever since.
Read the full article in Forbes.