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Will Medicaid Gains Offset DSH Cuts?

Fischer, Kyle MD, MPH

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doi: 10.1097/01.EEM.0000461263.90481.71

    The Disproportionate Share Hospital (DSH) program was developed to provide financial assistance for hospitals that care for large numbers of Medicaid and uninsured patients. Policymakers reevaluated the program's funding during the development of the Affordable Care Act (ACA) because they expected Medicaid expansion to decrease hospitals' frequency of uncompensated care. Subsequently, Congress predicted health systems would require fewer DSH payments and scheduled funding cuts to finance the ACA.

    New research examined this scenario with a focus on California in 2019 when DSH reductions are scheduled to be steepest. The researchers aimed to calculate whether future insurance expansion gains will sufficiently offset scheduled DSH reductions. The authors examined each of California's 20 public DSH hospitals, and quantified the 2010 costs resulting from care provided to Medicaid and uninsured patients during hospitalizations and outpatient visits. They adjusted for several factors to project forward to 2019, including inflation, population changes in insurance status, and each hospital CFO's estimate of patient retention.

    The projected costs were then compared with DSH allocations under two possible scenarios — small or large reductions. Future payments are yet to be calculated, but will be dependent upon California's percentage of uninsured residents and the precision with which the state targets funds to hospitals with high volumes of Medicaid and uncompensated care. Under both scenarios, the authors calculated a significant budgetary difference with a resultant shortfall of $826 million and $982 million, respectively. The authors concluded that these findings may threaten the financial stability of safety net hospitals and recommend that leaders develop local strategies to mitigate financial risk.

    The findings of this study are undoubtedly noteworthy, but hospitals and policymakers should recognize that the ACA included a variety of payment and delivery reforms that aim to improve efficiency of care. These changes will occur in many of the study hospitals concurrently with the DSH reductions and, if successful, may mitigate the projected shortfall. These projections have the potential to disrupt the financial stability of the safety net, but it is worth noting that these reductions are temporary. Payments return to full levels in 2023.

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