Recalibrating Add-On Payments in the H.R.1 Era

Coders may very well feel that they have no impact on hospitals under H.R.1, the so-called One Big Beautiful Bill Act (OBBBA). Just the opposite is true, and the impact will first appear in the claims file.

When a Medicaid beneficiary loses coverage, the patient does not disappear from the emergency department, the lab, or labor and delivery. What changes is the payor field on the claim.

Coding patterns, payer sequencing, and data infrastructure all drive Disproportionate Share Hospitals (DSHs), Medicaid Directed Payments (SDPs, or State Directed Payments), Medicare bad debt reimbursement, and 340B eligibility on the finance side.

The Coding Shift From Medicaid to Self-Pay

When coverage drops, hospitals will see measurable shifts in the following:

• Growth in self-pay or charity status codes; and
• Declines in Medicaid Managed Care plan identifiers.

DSH hospital-specific limits rely on documented Medicaid shortfalls and uncompensated costs for the uninsured. If former Medicaid patients become uninsured, they move from one bucket to another – but reimbursement formulas often lag behind that reality.

Rethinking DSH Through the Claims Lens

DSH formulas depend heavily on:

• Medicaid inpatient utilization rates;
• Medicaid revenue-versus-cost calculations; and
• Documented charity care and uninsured claims.

If Medicaid enrollment contracts under H.R.1, policymakers should modify DSH percentage methodologies to:

1. Incorporate documented coverage churn identified through claims resubmission and eligibility retroactivity patterns;
2. Adjust hospital-specific limits to account for patients who were Medicaid-covered in prior measurement years, but now appear as uninsured; and
3. Shorten audit lookback periods so that DSH payments reflect real-time enrollment changes, rather than stale eligibility baselines.

Medicaid Directed Payments (SDPs): Percentages Must Flex

Many SDPs are structured as a percentage of Medicare, often capped at 100 percent in expansion states and 110 percent in non-expansion states.

But percentage caps applied to shrinking Medicaid volume produce compound revenue compression, in the form of:

• Fewer Medicaid claims;
• Percentage ceilings limiting rate support; and
• Managed care rate cells that may not immediately adjust.

The Bad Debt Conversion Problem

From a coding standpoint, one of the most consequential shifts will be the conversion of Medicaid claims to bad debt.

A Medicaid encounter with partial reimbursement can become a self-pay account with minimal recovery. Hospitals will see:

• Rising contractual allowance adjustments replaced by bad debt expense;
• Increased write-offs under revenue cycle codes; and
• Longer aging buckets in accounts receivable.

Medicare reimburses a portion of allowable bad debt for dual-eligible cost-sharing, but there is no equivalent federal stabilization mechanism for newly uninsured patients.

340B: The Minimum Stabilizer

If federal policymakers are unwilling to expand DSH allotments or increase SDP percentage caps, they should at least revisit constraints in the 340B program.

Modifications could include:

• Adjusting Drug Pricing Program (DPP) formulas to account for enrollment churn;
• Temporarily freezing eligibility thresholds; and
• Protecting contract pharmacy arrangements that generate margin used to offset bad debt growth.

If patients shift from Medicaid to uninsured status, 340B margin becomes one of the few internal cross-subsidies available.

How Can Coding and Finance Work Together?

Claims coding will show the shift in real time. Coding and finance need to work together to make sure that a system is in place to compile comparative data. That data should reflect the impact of changed coding patterns as the patient mix changes – and the changes themselves. 

This requires a robust electronic medical record (EMR) that enables the reporting and allows for two-way communication between coders and finance on how to respond to changes.