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August 12, 2019

Do Medicaid DSH payments cover the cost of uncompensated care? It depends on the state.

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    Supplemental Medicaid payments distributed to disproportionate share hospitals (DSH) in 2014 varied widely by state, according to a Government Accountability Office (GAO) report.

    Map: Where the states stand on Medicaid expansion

    Report details

    Medicaid DSH payments are one type of supplement payment designed to offset the costs of uncompensated care hospitals provide to uninsured patients and Medicaid beneficiaries. CMS allots the payments to states, which are tasked with distributing the funds to disproportionate share hospitals.

    The Affordable Care Act included a provision to reduce DSH allotments over time, as lawmakers expected the law's Medicaid expansion would lower uncompensated care costs. However, not all states have expanded their Medicaid programs, and Congress has delayed the cuts from taking effect. Congress currently is considering whether to delay a $4 billion payment cut scheduled to take effect in fiscal year 2020 or overhaul the program.

    GAO was asked to evaluate the program, how Medicaid DSH payments to states are distributed to hospitals, and how they relate to hospitals' uncompensated care costs and the gap between Medicaid payments and the actual cost of care. The report is based on 2014 audit data from 48 states and Washington D.C.


    GAO found Medicaid DSH payments made to hospitals varied widely by state.

    When looking at disproportionate share hospitals' total uncompensated care costs nationwide, GAO found Medicaid DSH payments covered about half of those costs in 2014. But in four states—California, Illinois, Maryland, and Missouri—Medicaid DSH payments exceeded hospitals' aggregate uncompensated care costs. In 19 states, meanwhile, Medicaid DSH payments covered at least 50% of hospitals' uncompensated care costs, while in 29 states the payments covered less than half.

    In addition, the report found nationally Medicaid DSH payments accounted for 13.6% of the total amount Medicaid paid to disproportionate share hospitals in 2014. But those payments also varied widely by state. For instance, GAO found DSH payments in Maine accounted for 96.6% of total Medicaid payments to disproportionate share hospitals in the state, while DSH payments in Tennessee accounted for 0.7% of total Medicaid payments to disproportionate share hospitals.

    According to the report, in the vast majority of states—40—hospitals received DSH payments that represented less than 20% of hospitals' total Medicaid payments, while in eight states, DSH payments exceeded 20% of total Medicaid disproportionate share hospital payments.

    GAO offered no recommendations for addressing the payment disparities, noting that CMS is aiming to improve Medicaid DSH payment transparency in an upcoming rule (Luthi, Modern Healthcare, 7/29; Romoser, Inside Health Policy, 7/31 [subscription required]; Government Accountability report, July 2019). 

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