Hospitals, especially safety-net facilities, are sounding the alarm about proposed Medicaid and uncompensated care cuts that could leave millions without health insurance coverage.

In recent months, healthcare proposals on Capitol Hill and President Donald Trump's proposed budget raised the possibility of rolling back Medicaid expansion, which could lead to more uncompensated care for hospitals. Though healthcare efforts in Congress have stalled, a new CMS rule isn't calming fears about uncompensated care.

The Medicare Inpatient Prospective Payment System includes a controversial new formula for calculating uncompensated care payments. The formula uses the Medicare Cost Reports, also called Worksheet S-10, to calculate Disproportionate Share Hospital (DSH) payments to facilities that serve low-income populations. The rule would increase DSH payments to $6.8 billion, which is about $800 million more than FY2017, but some are concerned about how they would be calculated.

T he American Hospital Association spoke out about the change. One problem, the AHA said, is that the S-10 is confusing and not always accurate.

"We had urged the agency to delay its [S-10] use in calculating DSH payments by one year to further educate hospitals about how to accurately and consistently complete the S-10, and also implement a stop-loss policy and audit process," AHA Executive Vice President Tom Nickels said in a statement.

Additionally, CMS said the FY2018 uncompensated care payments for all hospitals would be $2 billion less than the current fiscal year. The uncompensated care payments are expected to drop $43 billion between FY2018 and FY2025.

"We anticipate that the final rule would affect certain providers through the reduction of state DSH payments. We cannot, however, estimate the impact on individual providers or groups of providers," according to the proposed rule in the Federal Register.

Less uncompensated care payments will cause problems for hospitals already dealing with razor-thin margins. Medicaid expansion has helped hospitals in 31 states and Washington, D.C. , which added coverage for more than 11 million people. Those 11 million people make up more than half of the 20 million newly insured Americans because of the ACA.

The Kaiser Family Foundation (KFF) recently released a report that showed how Medicaid expansion helped hospitals. In 2013, uncompensated care, including charity care and bad debt, cost hospitals $34.9 billion. Hospitals in Medicaid expansion states incurred about $16.7 billion and hospitals in non-expansion states about $18.1 billion. The following year, uncompensated care dropped to $28.9 billion, which is a 17% drop. Nearly all of the decrease came from Medicaid expansion states.

"The cost of uncompensated care has declined among hospitals in Medicaid expansion states, while such costs have remained flat among hospitals in states that did not expand Medicaid," according to KFF.

How would Medicaid cuts affect hospitals?

The Urban Institute recently released a report that offered a glimpse into what could happen if Medicaid expansion ends. Using data from fiscal year 2015, the study found that Medicaid expansion increased revenue per hospital by $5 million in expansion states, reduced uncompensated care costs by $3.2 million per hospital and improved average operating margins by 2.5 percentage points. The study also found small hospitals, for-profit, non-federal government-operated hospitals and hospitals not in metropolitan areas benefited the most from Medicaid expansion.

States that chose to expand Medicaid improved the "financial health of hospitals by decreasing the proportion of patient volume and unreimbursed expenses attributable to uninsured patients, while increasing revenue from newly covered patients," wrote study author Fredric Blavin, senior research associate at Urban Institute.

There are questions about whether those hospitals will be viable. That could be the death knell for those hospitals over the long run as a result.

Edwin Park

Vice president for health policy at the Center on Budget and Policy Priorities

Edwin Park, vice president for health policy at the Center on Budget and Policy Priorities, told Healthcare Dive that hospitals with a disproportionate number of low-income patients who are more reliant on Medicaid are the ones that will feel the brunt of Medicaid cuts.

"There are questions about whether those hospitals will be viable," said Park. "That could be the death knell for those hospitals over the long run as a result."

Park said hospitals that expanded capacity with clinics, more primary care, and horizontal and vertical integration because of expanded health insurance coverage would feel the pain. If more Americans become uninsured, hospitals won't recoup those "sunk costs," said Park.

"Capacity is no longer viable financially if those patients won't have coverage," he said.

One hospital's concerns about uncompensated care changes

Uncompensated care made up 6.1% of total expenses for community hospitals in 2012, according to the American Hospital Association . Since that year and after the ACA, the percentage has decreased and made up 4.2% of expenses in 2015.

Since Medicaid expansion, Tufts Medical Center in Boston saw its Medicaid population increase from 26% in FY 2013 to 31%. The 415-bed hospital has 6% uncompensated care.

It wouldn't be the first time we've experienced cuts, but this would be more significant than anything we've seen.

Deborah Joelson

Senior vice president of strategic services at Tufts Medical Center

Deborah Joelson, senior vice president of Strategic Services at Tufts Medical Center, told Healthcare Dive that Tufts Medical Center has needed to make tough decisions in response to Medicaid cuts before. During an earlier round of Medicaid cuts, Tufts Medical Center dropped its inpatient children's psychiatric unit. Joelson said the nonprofit hospital would need to review its program offerings if there are further cuts and see what it can still provide.

"It wouldn't be the first time we've experienced cuts, but this would be more significant than anything we've seen," she said of the proposed Medicaid cuts in the president's proposed budget.

Joelson is especially concerned what Medicaid cuts would do to children's healthcare . More than 60% of Tufts Medical Center Medicaid patients are children.

Tufts Medical Center has the 128-bed Floating Hospital for Children as part of its facility. Patients include opioid-addicted babies and children with asthma who need expensive medications. "There's a lot of concern about the impact on this population over time and how do we manage this if they are no longer eligible or able to have insurance," she said.

To try to bridge the gap, Tufts could request higher rates from commercial payers, but Joelson isn't confident that the facility will raise more funds from private payers. "Health benefits are already so high for employers. I don't really see getting a lot of relief by increasing commercial premiums," she said.

Similar to most hospitals, Tufts Medical Center is struggling to gain a razor-thin margin. Having such unforgiving margins means the hospital isn't able to invest much in its future or build new facilities. Tufts has partnered with other facilities in recent years, such as Lowell General Hospital and Hallmark Health, as a way to improve efficiency.

The long-range goal is 3-4% margins, but Tufts is shooting for a 1% margin this year. "We're struggling to meet that," she said.

Tufts Medical Center recently joined a new Medicaid managed care program in Massachusetts. Starting in January, Massachusetts' Medicaid program, which is called MassHealth, will have an accountable care organization (ACO) model with managed care plans.

Tufts Medical Center is one of 18 ACOs that will be part of the plan. The value-based payment model will incentivize the hospitals to manage care, lower cost and improve quality, said Joelson.

"We're hoping that restructuring the model will be more effective for us and at least protect us from the ratcheting down of the (Medicaid) rates," she said.

Though concerned about the proposed Medicaid cuts, Joelson said she's hopeful that the new managed care program, which received a federal government waiver, will be largely safe from the cuts.