Medicaid DSH

Medicaid disproportionate share hospitals (DSH) are hospitals that serve a large number of Medicaid and low-income uninsured patients.  Recognizing the importance of DSH hospitals to the Medicaid program, states make additional payments (called DSH payments) to these hospitals "to improve the financial stability of safety-net hospitals and to preserve access to necessary health services for low-income patients." (MACPAC, March 2014 Report to Congress)

Each state is allotted DSH funding according to a formula that is generally based on historical spending, increased to account for inflation; the states also have discretion in how DSH funding is distributed.

The ACA mandated cuts to Medicaid DSH based on the assumption that the ACA would expand Medicaid coverage to almost all non-elderly adults under the age of 65.  This expansion would thereby reduce the number of uninsured individuals, and the cost to hospitals of caring for these individuals.

As originally structured, the ACA called for a total of $18 billion in Medicaid DSH cuts beginning in FY 2014 and continuing through 2020.  Subsequent legislation has both delayed the implementation of the cuts and extended the Medicaid DSH cuts (currently through 2025 into future years. Current law requires reductions in the below amounts:

  • $4.0 billion in FY 2020;
  • $8.0 billion in FY 2021;
  • $8.0 billion in FY 2022;
  • $8.0 billion in FY 2023;
  • $8.0 billion in FY 2024; and
  • $8.0 billion in FY 2025.

The ACA directed the Secretary of HHS to develop a methodology that predominantly distributes the aggregate DSH cuts among states that:

  1. have the lowest percentages of uninsured individuals, or,
  2. fail to target DSH payments to hospitals with high uncompensated care amounts and Medicaid volume. 

The Supreme Court, in June 2012, upheld the constitutionality of ACA’s individual mandate to purchase health insurance, but that same decision, as a practical matter, makes Medicaid expansion optional for states.  As a result, the number of uninsured individuals still cared for by hospitals has not declined at the levels anticipated by the ACA.

As such, DSH cuts of the magnitude contemplated in current law pose a significant risk to the Medicaid safety net at a time when demands on the program are growing and the responsibilities of hospitals to care for the uninsured have not abated. FAH believes it is important for policymakers to continue to work to eliminate, or at a minimum delay, continue to delay these harmful cuts.