1. Medicaid Hospital Financing 101
Stacy Wilson
President
February 13, 2017

2. Overview Background Direct Medicaid payments Supplemental payments
Inpatient services
Outpatient services
Supplemental payments
Disproportionate Share Hospital (DSH) program
Medicaid 1115 Transformation Waiver payments
Incentive payments SFY
Block grants and per beneficiary allotments

3. # Inpatient Beds (Staffed, 2014) Level 1 (Comprehensive)
CHAT Members
Hospital
Location
# Inpatient Beds (Staffed, 2014)
Trauma Designation
Children’s Health
Dallas
418
Level 1 (Comprehensive)
The Children’s Hospital of San Antonio
San Antonio
180
Level 3 (Advanced)
Cook Children’s Medical Center
Fort Worth
363
Level 2 (Major)
Covenant Children’s Hospital
Lubbock 73
Level 2
Dell Children’s Medical Center
Austin
248
Level 1
Driscoll Children’s Hospital
Corpus Christi
162
Level 3
El Paso Children’s Hospital
El Paso
122
N/A
Texas Children’s Hospital
Houston
629

4. Hospitals in Texas 724 hospitals in Texas Major employer in community
653 general and special
57 private psychiatric
14 State-owned
9 psychiatric
1 psychiatric for youth
Texas Center for Infectious Disease
3 university hospitals
Major employer in community
Economic driver
Source: Texas Department of State Health Services

5. Hospital Ownership
Sources: Kaiser Family Foundation; Texas Organization of Rural and Community Hospitals

6. EMTALA 1986 Emergency Medical Treatment and Labor Act (EMTALA)
Medicare-participating hospitals must medically screen individuals seeking emergency services regardless of ability to pay
Patients with an emergency medical condition must:
Receive treatment to stabilize the condition or
Be transferred to a facility that can treat the condition
Once condition is stabilized or person is admitted EMTALA obligations end

7. Texas Medicaid Jointly funded by state and federal governments
Texas program started in 1967
Administered by Texas Health and Human Services Commission (HHSC)
Entitlement program
Government cannot limit number of eligible people who can enroll
Medicaid must pay for covered services
4.1M Texans enrolled (10/2016)
Source: Texas Health and Human Services Commission

8. Texas Medicaid – Coverage
Texas Medicaid serves:
Children
Related caretakers of dependent children
Pregnant women
Elderly
People with disabilities 
Texas Medicaid does not serve:
Non-disabled, childless adults

9. Medicaid Cost Drivers
Source: Texas Health and Human Services Commission

10. Lower per-person costs Average annual growth rate, 2000-2009
Source: Center on Budget and Policy Priorities

11. Children’s Hospitals Depend on Medicaid
Source: Texas Hospital Inpatient Discharge Public Use Data File, 2014; Center for Health Statistics, DSHS.

12. Texas Medicaid – Funding Sources
~$0.44
State & Local
Government
Funds
Hospitals, Doctors, Other Providers
State general revenue
Local hospital district taxes
County taxes
Other government funds
Federal
Funds
FMAP = Federal Medical Assistance Percentage =
$1.00
~$0.56

13. Funding Sources (cont’d)
Feds pay different share for every state
Based on relationship of state’s average per capita income to national average
States that are better off get smaller federal share
Minimum federal share 50%; current max is % (Miss.)
Texas is 29th

14. FMAP Reduced Over Time

15. How we pay for healthcare

16. Direct Service Payments

17. Inpatient Rates Prospective Payment System (PPS)
Standard Dollar Amounts (SDAs)
Percentage of average cost of IP admission
General; Children’s; Rural (facility-specific)
All Patient Refined Diagnosis-Related Group (APR- DRG) weights
Add-ons: geographic wage, teaching, trauma (not for children’s), safety net; no add-ons for rural hospitals because facility-specific rate
Inpatient payment does not cover all of a hospital’s cost in providing services

18. Inpatient Reimbursement
IP Methodology
SDA
Add-Ons
APR-DRG Weight
Inpatient Reimbursement

19. Outpatient Rates Percentage of cost
High-volume (at least $200K in 2004)
54% high-volume
Imaging and clinical lab are paid on a fee schedule – limited to 125% of acute care Medicaid fee
Non-emergent ER visits = 65% emergent fee for rurals; 125% of acute care Medicaid fee for office visit for others
Hospital Type
High-Volume
Non-high Volume
Children’s
State-owned
Rural
76% of cost
100% of cost
72.70% of cost
All others
72% of cost
68.44% of cost

20. State Funding for Hospital Payments
2015 Legislature provided $500M in Medicaid rates
$129M in Medicaid rate add-on for safety net hospitals (10% set-aside for high performers)
$67M for trauma add-on (added to $44M current funding)
$25M for rural payments
Non-urgent ER (45% to 65%)
OP and lab/imaging services at 100% of costs
Funded by trauma dollars (except $5M for rural hospital outpatient rates) .
NEXT STEPS
Work with HHSC on fair and equitable methodologies to reimburse hospitals

21. Supplemental
Payments

22. Medicaid DSH Established by OBRA 1981
Paid to hospitals that care for “disproportionate share” of Medicaid and low-income patients
Amount of funds available set by federal law annually
Each eligible hospital has specific limit or cap
Paid to approximately Texas hospitals

23. DSH Eligibility Enrolled as a Medicaid hospital in Texas
Have received at least one Medicaid payment for an inpatient claim (other than for a dually eligible patient) that was adjudicated during the DSH data year
Apply

24. Conditions of Participation
Must have:
At least two physicians with privileges to provide non-emergency OB services to Medicaid enrollees
Medicaid IP utilization rate of at least 1%
Trauma hospital or seeking designation
Agreement to be audited
Doesn’t apply to children's hospitals or hospitals operating not offering non-emergency OB services as of 12/22/87

25. Qualification Hospital must have one of the following:
A specified Medicaid inpatient utilization rate; or
A low-income utilization rate that exceeds 25%; or
A specified amount of total Medicaid days

26. Medicaid DSH Paid for services provided two years earlier
Funded through:
Intergovernmental transfers provided by public hospitals
Future DSH reductions to pay for coverage expansion under ACA

27. Proposed DSH Cuts (in billions)

28. Medicaid 1115 Transformation Waiver

29. Waiver Components Three components of waiver:
Expansion of Medicaid managed care statewide
Uncompensated Care Pool
Delivery System Reform Incentive Payment Pool

30. Managed Care

31. Waiver Funding (in billions)
DY 1
( )
DY 2
( )
DY 3
( )
DY 4
( )
DY 5
( )
DY 6/6A ( /17)
Total UC
$3.7
$3.9
$3.534
$3.348
$3.1
$3.875
$21.457
DSRIP
$.5
$2.3
$2.666
$2.852
$15.293
Total/DY
$4.2
$6.2
$7.75
$36.75
% UC
88%
63%
57%
54%
50%
% DSRIP
12%
37%
43%
46%

32. Hospital Payments 2016 (in billions)

33. The times they are a- changing?

34. Medicaid Funding Summary

35. Medicaid Operation & Financing
State
Federal
Financing
Medicare
Medicaid Open- ended Financing
Medicaid
Per Beneficiary Allotment
Block Grant
Federal

36. Illustration: Medicaid Reform Proposal

37. Medicaid: Federal Spending

38. CHAT’s Legislative Priorities

39. Increase Medicaid Outpatient Rates
Outpatient services
Closer to people’s homes so less time away from work or school to receive services
Provided at a lower cost than inpatient services
Ensures inpatient capacity
Reimbursement
Limited to around 70% of allowable costs
Not increased since 2007
Important to increase baseline if moving to block grant or per capita cap
Incentivize appropriate use of outpatient services with increased reimbursement

41. Continue Safety Net Add-On
CHAT hospitals
Pediatric safety net for all Texas children
80,000 inpatient discharges in 2014
Personnel and equipment to treat most medically complex conditions
$128M in trauma funds for safety-net add-on for ; 10% used as quality incentive awards
Children's hospitals
$24M in safety net add-on payments
$8M in incentive payments
Trauma funds depleted
Use general revenue to make up any gap in funding for

42. CHAT Hospitals Provided Inpatient Care to Children Living in 245 of Texas' 254 Counties, 2014
Counties with Discharges
Sources: Public Use Data File,
THCIC – DSHS and Texas
State Data Center
Counties without Discharges
Approximately 4,000 children, less than one-tenth of 1% of the
state's 7.1 million children, lived in the remaining 9 counties.

43. Questions?

44. Wonky Stuff

45. State Regulations 1 TAC chapter 355§
Inpatient Hospital Reimbursement §
State-Owned Teaching Hospital Reimbursement Methodology §
Inpatient Direct Graduate Medical Education (GME) Reimbursement §
Reimbursement Methodology for Freestanding Psychiatric Facilities §
Outpatient Hospital Reimbursement §
Disproportionate Share Hospital Reimbursement Methodology §
Hospital-Specific Limit Methodology

46. DSH Qualification Medicaid Inpatient Utilization Rate
Total Medicaid inpatient days Total inpatient census days
Divide Total Medicaid inpatient days by total inpatient census days for DSH year
Different for hospitals inside/outside MSA or PMSA – outside is greater than the mean; inside is at least one standard deviation above the mean
Rural hospitals must have a MIUR that exceeds the mean MIUR of all Medicaid hospitals.
Urban hospitals must have an MIUR that is at least one standard deviation above the mean MIUR for all Medicaid hospitals.

47. DSH Qualification Low-Income Utilization Rate
Medicaid inpatient hospital payments + Total state and local payments
Gross inpatient revenue x inpatient cost-to-charge ratio +
Total inpatient charity charges - Total state and local payments
Gross inpatient revenue

48. DSH Qualification Total Medicaid IP Days
Each day individual is an inpatient in the hospital (excludes dual eligibles)
Must have total Medicaid IP days that are at least one standard deviation above the mean total Medicaid IP days for all Medicaid hospitals (except for hospitals in less-populated counties)

49. Hospital Specific Limits/Caps
DSH hospital-specific limit (HSL)
Medicaid costs – payments +
Uninsured costs – payments
UC hospital-specific limit
Calculated like DSH limit but also includes pharmacy, clinic, and physician costs
No cap on Delivery System Reform Incentive Payment project payments (other than CMS-approved value)

50. DSH Compensation
Up to three passes of funding to try to maximize federal dollars
Pass 2 funding occurs to re-distribute funds that cannot be paid to a hospital that has reached its HSL
Pass 3 funds available to rural public hospitals who are below their HSL

51. DSH Payment
After distribution of DSH payments to state-owned hospitals up to their caps, HHSC divides remaining funds into three DSH funding pools
Pool 2
Lesser of: (a) remaining DSH funds after Pool 1 and matching federal funds or (b) federal funds from DSH IGTs in Pool 3
Available to all non-state-owned hospitals
Pool 1
GR and associated federal funds
Available to all non-state-owned hospitals
Pool 3
DSH IGTs
Available to transferring hospitals only
Urban publics Class 1* fund state share of Pass 1 and 2 payments to private hospitals from Pool 2
Each urban public Class 2 funds state share of Pass 1 & Pass 2 payments to that hospital from Pool 2
Each non-urban public hospital funds half of state share of Pass 1 & Pass 2 payments to that hospital from Pool 2 – other half funded by GR
Each non-urban public must make up its shortfall
if GR (Pool 1) is not half of state share of Pass 1 & 2 payments to that hospital
If Urban Class 1 public doesn’t fund full IGT, IGT shortfall distributed across all DSH payments supported by IGT
If Urban Class 2 public doesn’t fund full IGT, DSH payment to that hospital reduced to amount supported by IGT
If GR from Pool 1 doesn’t cover one-half, non-urban public entity to make up difference; if doesn’t, DSH reduced to amount supported by IGT
* Urban publics are divided into two classes:
Class 1 = Dallas County, El Paso County, Harris County, Tarrant County, Travis County, and Bexar County Hospital Districts.
Class 2 = UMC-Lubbock and Ector County Hospital District

52. Uncompensated Care UC Pool
State-Owned Hospitals
Large Public
Hospitals*
Small Public
Hospitals**
Private
Hospitals
Physician Group Practices
Gov’t Ambulance
Providers
Public Dental Practices
Allocation to each pool is “UC need,” defined as:
State-owned = Amount ≤ Maximum UC payment amount
Large Publics = Sum of HSLs – DSH payments + IGT for private hospitals’ DSH payments
Small Publics = Sum of HSLs – DSH payments + Rider 38 set-aside
Privates = Sum of HSLs – DSH payments + Rider 38 set-aside
Physician Groups = UC costs on UC application
Government Ambulances = Federal share of UC costs on UC application
Dental Practices = Allowable costs – payments
* Urban-Class 1 hospitals under DSH rules
** Urban-Class 2 and non-urban hospitals under DSH rules