Tennessee seeks to update strategy for hospital uncompensated care

Tennessee plans to seek federal permission to change how it doles out uncompensated-care funds to hospitals.

The state is collecting comments on a proposed state plan amendment to update how Medicaid distributes disproportionate-share hospital, or DSH, funds, which cover unpaid bills at hospitals with high amounts of Medicaid patients. Tennessee receives $53 million in Medicaid DSH funds annually.

Currently, each eligible hospital receives a set amount of DSH money. If they have been overpaid, the state recovers the excess DSH funds and redistributes them to other hospitals within the same DSH funding group. These categories include essential service safety net hospitals, children’s safety net hospitals, and free-standing psychiatric hospitals. The state plan amendment will allow recovered funds to be redistributed to any DSH-eligible hospital.

Tennessee is looking to make the change as its hospitals face mounting financial pressure, largely due to the state’s decision not to expand Medicaid. Eight hospitals in the state closed between January 2010 and January 2018, according to a database created by the North Carolina Rural Health Research Program.

Only Texas has had more hospitals close during that eight-year period, according to the database.

Patient revenue hasn’t covered total hospital expenses in the state since 2010, according to the Tennessee Hospital Association, which tracks the finances of acute-care hospitals. By 2014, expenses were $240 million more than patient revenue, according to the association’s most recent figures.

The trade group supports the proposed change and plans to work with the state to implement it, according to Yolanda James, an association spokeswoman.

Erlanger Health System, a Chattanooga, Tenn.-based system with seven hospitals, also praised the move as it gives the state more flexibility in handling the distribution of funds, according to Stephen Johnson, vice president of governmental and payer relations at Erlanger.

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