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Moody's: Medicaid and Medicare DSH payment reductions could challenge states and hospitals

Global Credit Research - 14 Mar 2013

New York, March 14, 2013 -- The upcoming reductions called for in the Affordable Care Act to federal disproportionate share hospital (DSH) payments, estimated to rise to $17 billion annually by 2019, will lead to political and budgetary pressure on state governments as they seek to replace the lost funds says Moody's Investors Service. Hospitals providing high levels of charity care and with heavy Medicaid loads will be most vulnerable to budget shortfalls because of the DSH reductions.

Pressures will be greatest in states that opt out of Medicaid expansion, but have a relatively high proportion of uninsured residents, says Moody's in the report "Reduction of Medicaid & Medicare Disproportionate Share Hospital Payments a Looming Challenge for States and Hospitals."

The DSH reductions are expected to be covered by the lower cost of charity care, as the Affordable Care Act is aimed at lowering the ranks of the uninsured. However, states that opt out of the Medicaid expansion, as the June 2012 Supreme Court ruling on the Affordable Care Act allows, may face large uninsured populations at the same time that the DSH payments decline.

"States that opt out of Medicaid 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," says Nicole Johnson, a Moody's Senior Vice President. "States that choose to fund uncompensated care costs themselves could face budgetary strain."

States use federal Medicaid and Medicare DSH funding, to help hospitals with large numbers of Medicaid and low-income uninsured patients provide care.

To date, governors in 14 states have recommended against Medicaid expansion, and the governors of three states are leaning in this direction. Seven of those 14 states already have above average levels of uninsured adults that would qualify for Medicaid under the Affordable Care Act.

At the hospital level, large urban "safety net" hospitals that typically treat large populations of Medicaid and uninsured patients are most at risk from the DSH phase-out, says Moody's.

The increased costs could lead to pressure on some hospital ratings unless they are offset by higher Medicaid and private insurance rates, lower numbers of uninsured patients, or backfill funding from states, says Moody's.

Moody's notes that Medicaid DSH payments are scheduled to be restored in federal fiscal year 2022, but federal budget austerity could alter that, as actions to reduce the federal deficit have already pushed back increased DSH payments once.

For more information, Moody's research subscribers can access this report at .http://www.moodys.com/research/Reduction-of-Medicaid-and-Medicare-Disproportionate-Share-Hospital-Payments-a--PBM_PBM150991.

***

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: New York +1-212-553-0376, London +44-20-7772-5456, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

Nicole?Johnson
Senior Vice President
Public Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Timothy?F?Blake
Senior Vice President
Public Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's: Medicaid and Medicare DSH payment reductions could challenge states and hospitals
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