Supporting Safety Net Hospitals through DSH Payment Cuts and Medicaid Expansion

Source: Lindsey Woodworth, University of California – Davis, Policy Brief, Vol. 3 no. 9, 2015

From the introduction:
A major component of the Affordable Care Act (ACA) was a mandated expansion of Medicaid. The law also prescribed cuts to Medicaid Disproportionate Share Hospital (DSH) payments, which subsidize hospitals with high levels of uncompensated care. For states that have opted out of Medicaid expansion, Medicaid reimbursements will not make up for lost DSH payments. However, DSH cuts may also create additional financial challenges for these hospitals in opt-in states if Medicaid expansion does not reduce overall uncompensated care.

Safety net hospitals care for disproportionately large shares of low-income patients who are either covered by Medicaid or are uninsured. To different extents, both populations generate uncompensated care. Medicaid reimbursements do not always cover the cost of treatment, and uninsured patients do not always provide reimbursement for care.

Key Facts:
• The ACA has prescribed cuts to Medicaid Disproportionate Share Hospital (DSH)payments which will take effect nationwide in 2018.
• In the states that have chosen not to expand Medicaid, safety net hospitals’ ability to withstand DSH cuts will depend on low income individuals’ procurement of private coverage.
• In the states that have decided to expand Medicaid, many low- income individuals will gain public coverage, but whether this will alleviate safety nets’ dependence on DSH payments will depend on the extent to which new enrollees increase their use of health care.