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MedPAC thinks CMS should stop using the Medicare DSH patient percentage for Medicare purposes. The 340B program uses the DSH calculation for hospital eligibility purposes.

MedPAC Votes to Recommend Ditching Medicare DSH Patient Percentage for Medicare Purposes

The Medicare Payment Advisory Commission, as expected, has voted to recommend that Congress should start phasing in a new way of distributing extra Medicare payments to safety net hospitals that disproportionately serve low-income and/or uninsured beneficiaries.

The proposal that MedPAC endorsed on Jan. 12 does not address the 340B program directly. If Congress adopts it, however, it will replace Medicare disproportionate share (DSH) payments and uncompensated care payments to hospitals with new Medicare safety net index (SNI) payments calculated differently. The transition to Medicare SNI payments would begin during the next fiscal year that starts Oct. 1. Congress could adopt, adapt, or take a pass on the recommendation.

Six types of hospitals are eligible for 340B drug discounts. Five of the six qualify for 340B based in part on the formula used to calculate Medicare DSH payments.

Medicare SNI would be computed as:

  • a hospital’s share of Medicare beneficiaries eligible for the Part D drug benefit low-income subsidy, plus
  • uncompensated care costs as a share of revenue, plus
  • one-half of a hospital’s Medicare share of total inpatient days.

Medicare SNI payments would be applied to Medicare inpatient and outpatient payments for services to Medicare fee for service and Medicare Advantage patients. Redistributing Medicare DSH and uncompensated care dollars to hospitals using the new SNI metric is expected to focus Medicare funding more tightly on hospitals serving high shares of low-income Medicare patients.

MedPAC’s executive director said in an interview in November, “We are not in any way, shape, or form suggesting changes to the 340B program…To the extent 340B by statute relies on a disproportionate care measure to determine eligibility, we are not saying anything about that…We are not touching it.”

While that is accurate, some critics of 340B hospitals have been saying for years that the Medicare DSH patient percentage is an inaccurate way to gauge whether hospitals deserve 340B discounts. One frequent criticism is that 340B is an outpatient drug program and the Medicare DSH percentage is based on hospital inpatient days.

If Congress votes to tell the Centers for Medicare & Medicaid Services to stop using the Medicare DSH patient percentage for Medicare purposes, and nothing else changes, the Health Resources and Services Administration would keep using it for 340B hospital eligibility purposes.

But if Congress tells CMS to stop using the Medicare DSH calculation in Medicare, 340B hospital critics could pressure Congress to tell HRSA to stop using it in 340B too, no matter what MedPAC says about not advocating changes to 340B. Hospital groups likely would fight this aggressively on Capitol Hill.

MedPAC is expected to include its Medicare SNI recommendation in its March report to Congress.

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