Medicaid supplemental payments are funds provided by New York State and local governments to hospitals that are not directly tied to the cost of specific medical services. This page covers CBC’s work on the Disproportionate Share Hospital program, the Upper Payment Limit program, the distribution of state and federal funding, the financial stability of safety net hospitals like NYC Health + Hospitals, and strategies for reforming payment allocation formulas.
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The State should better target Medicaid supplemental payments to H+H and other facilities with the greatest need, and finance the nonfederal portion of these payments with State revenues rather than local intergovernmental transfers.
The State should redesign the Medicaid supplemental payment programs to address the current flaw where allocation formulas direct significant funds to well-financed hospitals with relatively small volumes of indigent care losses.
Reducing reliance on local tax funds and increasing reliance on the broader based statewide tax base would make Medicaid supplemental payment programs more equitably financed and lower the local subsidy.
The State should transfer commercial insurance surplus revenues from hospitals not meeting a threshold of indigent care volume to help finance the nonfederal portion of Medicaid supplemental payments.
The State should reconsider its priorities in distributing Medicaid supplemental payments.
Pending cuts should not fall only on H+H, and adjustments, such as reduced payments to voluntary hospitals with limited reliance on supplementary payments, may be needed.
Key Data
In the three-year period from 2015 to 2017, supplemental payments covered an average of 75 percent of the operating deficit for New York City Health + Hospitals (H+H).
As of December 2019, the City provides approximately $1.1 billion annually to fund the nonfederal share of H+H’s supplemental payments, which constitutes a major portion of the local subsidy.
As of February 2019, New York State’s Medicaid program included $5.3 billion of supplemental payments, which are funds not directly associated with the provision of medical services.
As of February 2019, federal law changes were projected to reduce these payments by $2.9 billion annually, with the cuts phased in starting October 1, 2019.
The supplemental payment pool is comprised of three main programs: the Disproportionate Share Hospital (DSH) Program ($3.7 billion), the Upper Payment Limit (UPL) Program ($811 million), and State-Initiated Supplemental Support Programs ($758 million).
New York City Health + Hospitals faces a significant operating deficit, largely driven by inadequate Medicaid reimbursement rates and the need for local tax subsidies to cover shortfalls. To address this, the state should reform its Medicaid supplemental payment programs to better target institutions with the greatest need and reduce reliance on local government transfers.
Recommendations related to Medicaid Supplemental Payments
The State should better target Medicaid supplemental payments to H+H and other facilities with the greatest need, and finance the nonfederal portion of these payments with State revenues rather than local intergovernmental transfers.
The State should redesign the Medicaid supplemental payment programs to address the current flaw where allocation formulas direct significant funds to well-financed hospitals with relatively small volumes of indigent care losses.
Reducing reliance on local tax funds and increasing reliance on the broader based statewide tax base would make Medicaid supplemental payment programs more equitably financed and lower the local subsidy.
The State should transfer commercial insurance surplus revenues from hospitals not meeting a threshold of indigent care volume to help finance the nonfederal portion of Medicaid supplemental payments.
Key Data
$5 Billion
— The amount the State provides annually in supplemental Medicaid payments to hospitals and some ambulatory facilities.
$1.1 Billion
— The annual amount the City provides as the nonfederal share of most supplemental payments for H+H.
$1,760 Million
— The projected supplemental payments for H+H in fiscal year 2020.
$1,464 Million
— The projected supplemental payments for H+H in fiscal year 2023.
New York faces a significant fiscal imbalance, with a four-year budget gap of $28.8 billion driven by accelerating spending in areas like Medicaid and education. To address this, the state should implement structural reforms, including restructuring $3.6 billion in Medicaid supplemental payments to better support safety net hospitals and focusing education aid on needy districts.
Recommendations related to Medicaid Supplemental Payments
The state should reconstitute the Medicaid Redesign Team to reform the $3.6 billion in Medicaid supplemental payments so they are better directed to safety net hospitals in need.
The state should exercise powers granted under the Medicaid global cap to prevent Medicaid spending from exceeding budgeted amounts in future periods.
The state should focus education aid on needy districts to fund fully a sound basic education, as spending last year increased $800 million more than the amount needed.
The state should reduce unproductive economic development program spending, as there is little evidence that many of the $4.4 billion in annual investments produce results.
The state should consider reforms to retiree health benefits that were proposed repeatedly in recent Executive Budgets to reduce post-employment benefit costs.
Key Data
$3.6 billion
— The amount of Medicaid supplemental payments that should be reformed to better direct funds to safety net hospitals in need.
$12.5 billion
— The amount of previously unbudgeted Medicaid spending that contributes to the total four-year State budget gap.
$28.8 billion
— The total four-year budget gap facing the state.
$6.1 billion
— The budget gap reported for the next fiscal year.
$4.4 billion
— The amount New York spends annually on economic development programs that have little evidence of producing results.
$800 million
— The amount by which education spending increased last year beyond what was needed to fund a sound basic education for each district.
New York State's $5.3 billion Medicaid supplemental payment program faces significant instability due to looming federal funding cuts and criticism regarding the inequitable distribution of funds among hospitals. Legislative and executive leaders must develop a comprehensive strategy to equitably distribute these cuts and reform the allocation methods across all supplemental payment programs to ensure financial viability for hospitals serving vulnerable populations.
Recommendations related to Medicaid Supplemental Payments
The State should create a plan for mitigating and equitably distributing scheduled federal DSH cuts in advance of their implementation.
Any reforms to the Indigent Care Pool should be a part of a consideration of the full menu of supplemental payment programs.
New allocation methods and contingency plans for federal cuts should take into account the role and magnitude of all of the supplemental payments and the interactions among them.
The source of the nonfederal share of payments should also be reconsidered.
Key Data
$5.3 billion
— Total amount of Medicaid supplemental payments in New York State.
$2.9 billion
— Annual cut to New York State's Medicaid supplemental payments that will be phased in beginning October 1, 2019.
$3.7 billion
— Total funding distributed through the Disproportionate Share Hospital (DSH) Program.
$1.1 billion
— Funding amount for the Indigent Care Pool, which is divided among 175 hospitals.
$811 million
— Funding amount for the Upper Payment Limit (UPL) Program.
$758 million
— Funding amount for State-Initiated Supplemental Support Programs.
New York's current system for distributing federal Disproportionate Share Hospital (DSH) payments is inequitable, prioritizing certain hospital systems over the city's primary safety net provider, NYC Health + Hospitals. With federal funding cuts looming, the state must reform its distribution formulas to ensure funds are directed to hospitals with the greatest need rather than allowing the financial burden to fall disproportionately on public facilities.
Recommendations related to Medicaid Supplemental Payments
The State should follow through on the recommendation to convene a workgroup to evaluate revisions to the DSH distribution methodologies.
Reforms to the State’s DSH program should be enacted in the current legislative session.
The distribution formulas, particularly that for the Indigent Care Pool, should be revised to direct DSH payments to the hospitals with the greatest need.
State priorities for distributing DSH payments should be adjusted so they do not leave NYC Health + Hospitals to suffer DSH cuts alone.
The State should make payments promptly, ensuring that after DSH funds have been earned and cash is available, the State should disburse the funds without delay.
Key Data
$3.6 billion
— Annual amount distributed in DSH payments to hospitals across New York State.
$1.8 billion
— Amount of federal DSH funding New York receives, the largest amount of any state.
$724 million
— Loss of federal funding New York's hospitals would suffer in federal fiscal year 2020 under the latest schedule of DSH cuts.
$1.4 billion
— Annual loss of federal funding New York's hospitals would suffer thereafter.
73 percent
— Share of Medicaid patients among NYC Health + Hospitals' inpatients.
$759 million
— Losses reported by the 11 hospitals of NYC Health + Hospitals from serving the uninsured.
New York State distributes $5 billion annually in Medicaid supplemental payments to support hospitals, but these funds are projected to shrink due to federal policy changes. To ensure equity, the state must reconsider its distribution priorities rather than allowing the burden of these cuts to fall disproportionately on municipal hospitals.
Recommendations related to Medicaid Supplemental Payments
The State should reconsider its priorities in distributing Medicaid supplemental payments.
Pending cuts should not fall only on H+H, and adjustments, such as reduced payments to voluntary hospitals with limited reliance on supplementary payments, may be needed.
Key Data
$5 billion
— Total annual supplemental payments provided through four separate programs.
$370 million
— Net annual cuts slated for New York City municipal hospitals in 2018.
$659 million
— Projected impact of federal DSH payment reductions on New York.
$645 million
— Combined annual disbursement of VAPAP and VBP QIP programs.
$605 million
— Annual DSH payments received by State mental hospitals.
$314 million
— Total supplemental payments received by four specific Brooklyn hospitals.
New York's Medicaid program has historically been one of the most expensive in the nation due to high per-enrollee costs, generous eligibility rules, and extensive Disproportionate Share Hospital (DSH) payments. To address these issues, the state implemented the Medicaid Redesign Team (MRT) strategies, which focus on expanding managed care, improving care coordination through new delivery mechanisms, and shifting toward value-based payment models.
Recommendations related to Medicaid Supplemental Payments
New efforts should be made to work with federal officials to develop procedures that encourage and perhaps require enrollment in managed care plans and Health Homes in the future.
Continued strong monitoring of the evolution of Performing Provider Systems (PPSs) and their action plans is essential.
State regulations about the permissible extent of risk shifting and related reserve requirements may need revision to better protect consumers.
More aggressive goals exceeding 3 percent savings from redesign strategies might be appropriate.
Key Data
$60 billion
— Annual taxpayer funding for the Medicaid program.
$3.2 billion
— Amount awarded in Disproportionate Share Hospital (DSH) payments in federal fiscal year 2011.
$8.0 billion
— Total federal funds provided over five years to plan and establish Performing Provider Systems (PPSs).
$1.3 billion to $1.9 billion
— Annual savings target for state fiscal year 2020.
The New York City Health and Hospitals Corporation faces significant financial instability as its reliance on large-scale Medicaid supplemental payments is threatened by potential federal funding cuts and the expiration of previous revenue surpluses. With projected operating deficits exceeding $1.7 billion by fiscal year 2016, the corporation must identify new funding sources or significantly improve service efficiency to avoid drastic reductions in care for low-income and uninsured residents.
Recommendations related to Medicaid Supplemental Payments
HHC must redouble its efforts at delivering services more efficiently to address the gap in funding caused by the potential loss of supplemental Medicaid payments.
The City and HHC must identify alternative sources of revenue to replace any lost supplemental Medicaid payments to avoid a dramatic reduction in services.
HHC needs to implement more effective cost-saving measures, as the current plan relies on unspecified gap-closing actions from the State and federal governments that may not materialize.
Key Data
$1.6 billion
— Annual revenues HHC expects from special Medicaid supplementary payments.
$1.7 billion
— Projected operating deficit for HHC in fiscal year 2016.
$218 million
— Amount of personal service expenditures reduced by HHC between 2009 and early 2012.
$250 million
— Unspecified gap-closing actions from the State and federal governments projected for fiscal year 2013.
$850 million
— Unspecified gap-closing actions from the State and federal governments projected for fiscal year 2016.
$2.0 billion
— Combined federal and City Medicaid supplemental support in fiscal year 2007.
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