Disproportionate-Share Hospital Payment Reductions May Threaten the Financial Stability of Safety Net Hospitals

Safety net hospitals rely on disproportionate-share hospital (DSH) payments to help cover uncompensated care costs and underpayments by Medicaid. The ACA anticipates that insurance expansion will increase safety net hospitals’ revenues and will reduce DSH payments accordingly. This study examines the impact of the ACA’s Medicaid DSH reductions on California public hospitals’ financial stability by estimating how total DSH costs (uncompensated care costs and Medicaid shortfalls) will change as a result of insurance expansion and the offsetting DSH reductions. The researchers found that decreases in uncompensated care costs resulting from the ACA insurance expansion may not match the DSH reductions because of the high number of people who will remain uninsured, low Medicaid reimbursement rates, and medical cost inflation.