Jordan Ellis
In the United States, there are over 6,000 hospitals, and the government provides funding to those that treat indigent patients through the Disproportionate Share Hospital (DSH) programs. These hospitals serve low-income patients and receive payments from the Centers for Medicare & Medicaid Services to cover the costs of providing care to uninsured patients. The number of hospitals with high levels of uncompensated care that also provide essential community services for low-income, uninsured populations has been impacted by the COVID-19 pandemic, with hospitals reporting $41.9 billion in hospital charity care and bad debt costs in FY 2020.
| Characteristics | Values |
|---|---|
| Number of hospitals receiving adjustment | 3,109 |
| Percentage of Medicare DSH payments going to large hospitals in urban areas | 93% |
| Percentage of Medicare DSH payments going to teaching hospitals | 65% |
| Regions receiving 60% of DSH payments but only 46% of Medicare discharges | Middle Atlantic, South Atlantic, and Pacific |
| Reduction in funding for Medicaid DSH program between 2014 and 2020 | $17.1 billion |
| Reduction in aggregate Medicaid DSH allotments in 2014 | $0.5 billion |
| Reduction in aggregate Medicaid DSH allotments in 2015 | $0.6 billion |
| American Rescue Plan Act increase in DSH allotments in FY 2023 | $1.5 billion |
| Expected reduction in DSH allotments in FY 2024 | 54% or $8 billion |
| Number of hospitals in the United States | 6,093 |
| Number of hospitals considered "low DSH states" and their reduction percentage | 16 states with a 25% reduction |
| Reduction percentage for all other states | 51% |
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What You'll Learn
Disproportionate Share Hospitals defined in the Social Security Act
Disproportionate Share Hospitals (DSH) are defined in Section 1886(d)(1)(B) of the Social Security Act. These hospitals serve a disproportionate number of low-income patients and receive payments from the Centers for Medicare & Medicaid Services to cover the costs of providing care to uninsured patients.
To be eligible to participate in the 340B Drug Pricing Program, Disproportionate Share Hospitals must meet the requirements of 42 USC 256b(a)(4)(L). They must be classified as one of the following:
- A private nonprofit hospital under contract with state or local government to provide healthcare services to low-income individuals who are not eligible for Medicare or Medicaid.
- Owned or operated by a unit of state or local government.
- A public or private nonprofit corporation that is formally granted governmental powers by a unit of state or local government.
Additionally, eligible hospitals must have a disproportionate share adjustment percentage greater than 11.75% for the most recently filed cost report. For-profit hospitals are not eligible to participate in the 340B Program.
The United States government provides funding to hospitals that treat indigent patients through the DSH programs, allowing facilities to receive at least partial compensation. Medicare DSH payments are highly concentrated, with 93% going to large hospitals in urban areas and 65% to teaching hospitals. The funding is distributed unevenly across geographic areas due to variations in Medicaid eligibility and coverage across states.
The history of DSH payments dates back to 1981 when Medicaid hospital payments were delinked from Medicare payment levels. Initially, states mirrored Medicare's hospital payment policies to comply with reasonable cost requirements. However, as states gained broader discretion, concerns arose about the impact on hospitals serving large numbers of Medicaid beneficiaries and the uninsured. In response, legislation enacted in 1981, and further refined in 1991 and 1993, aimed to address these issues and ensure support for hospitals serving a disproportionate share of low-income patients.
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Medicare DSH payments are highly concentrated in large, urban hospitals
Disproportionate Share Hospitals (DSH) are hospitals that treat a disproportionate number of low-income patients and receive payments from the Centers for Medicare & Medicaid Services to cover the costs of providing care to uninsured patients. The United States government provides funding to these hospitals through the DSH programs, under which facilities are able to receive at least partial compensation.
The distribution of Medicare DSH payments has been a concern, with efforts made to eliminate the disparity between payments received by urban and rural hospitals with similar proportions of low-income patients. The Medicare Payment Advisory Commission (MedPAC) has recommended a single threshold for hospitals serving low-income patients and a revised Medicare DSH payment mechanism to address this issue.
Additionally, the distribution of Medicaid DSH funds has been a concern, with some states keeping a large share of federal payments. The Protecting Access to Medicare Act of 2014 directed MACPAC to publish reports on Medicaid Disproportionate Share Hospital Payments, comparing state DSH allotments to changes in the number of uninsured individuals and hospitals' uncompensated care costs. The Consolidated Appropriations Act of 2021 also made changes to the DSH definition of Medicaid shortfall, excluding enrollees with principal coverage through a third party.
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States kept a large share of federal DSH payments
Disproportionate Share Hospitals (DSH) are hospitals that serve low-income patients and receive payments from the Centers for Medicare and Medicaid Services to cover the costs of providing care to uninsured patients. The United States government provides funding to hospitals that treat indigent patients through the DSH program, under which facilities are able to receive at least partial compensation.
In 1989, state budget experts found a way to claim federal DSH funds without using general state funds, and instead use the DSH payment to mitigate hospitals' financial distress. This led to a rapid growth in the program, with federal DSH payments increasing from $1.4 billion to more than $15 billion annually between 1990 and 1996. However, states were keeping a large share of these federal payments. Hospitals slated to receive DSH funds were required to contribute the state share, after which the state would use this money to draw down a large federal matching payment. The hospitals would eventually get their contributions back, but the states often kept most of the federal payment.
In 1991, Congress attempted to restrict states' ability to tap into provider funds to claim federal matching funds by enacting the Voluntary Contribution and Provider-Specific Tax Amendments of 1991. This included banning provider donations, limiting provider taxes, imposing provider tax criteria, and capping state DSH payments. However, this did little to slow the practice of "recycling", where states would use DSH payments to earn federal matching dollars.
In 1997, the Balanced Budget Act included several DSH provisions, such as establishing new state-specific DSH allotments for 1998-2002 and limiting how much of a state's federal DSH allotment could be paid to institutions for mental disease. Despite these efforts, recycling persisted until the Centers for Medicare and Medicaid Services (CMS) began examining the practice on a state-by-state basis. In 2021, Medicaid made a total of $18.9 billion in DSH payments, with $8.1 billion in state funds and $10.8 billion in federal funds.
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DSH allotments increased by $1.5 billion in FY 2023
Disproportionate Share Hospitals (DSH) are defined in Section 1886(d)(1)(B) of the Social Security Act. They serve low-income patients and receive payments from the Centers for Medicare & Medicaid Services to cover the costs of providing care to uninsured patients. The United States government provides funding to hospitals that treat indigent patients through the DSH programs, under which facilities are able to receive at least partial compensation.
The American Rescue Plan Act increased DSH allotments by $1.5 billion in FY 2023. This was due to the application of the statutory formula for calculating DSH allotments, which involves increasing the prior fiscal year allotments by the percentage increase in the CPI-U for the prior fiscal year. The increase in FY 2023 was based on a historical percentage change in the CPI-U for FY 2022 of 7.6%.
The DSH system has experienced rapid growth, with federal DSH payments increasing from $1.4 billion in 1990 to over $15 billion annually by 1996. This growth was partly due to states contributing to DSH funds in order to draw down larger federal matching payments. However, in 1991, Congress sought to restrict this practice by enacting the Voluntary Contribution and Provider-Specific Tax Amendments, which included capping state DSH payments.
Despite these efforts, the recycling of DSH funds continued, with Congress responding in the Omnibus Budget Reconciliation Act of 1993 by making the practice more costly for hospitals. In 2010, the Affordable Care Act (ACA) mandated an $18 billion reduction in aggregate Medicaid DSH spending, assuming that increased health insurance coverage would lower hospitals' uncompensated care costs.
While the ACA helped lower the uninsured rate, the COVID-19 pandemic significantly impacted hospital finances, with DSH payments becoming a smaller share of total Medicaid funding. The increase in DSH allotments for FY 2023 will provide much-needed support to hospitals serving a high proportion of Medicaid beneficiaries and low-income patients. However, it is important to note that these increased allotments will phase out by FY 2024.
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Hospitals with high levels of uncompensated care
Disproportionate Share Hospitals (DSH) are defined in Section 1886(d)(1)(B) of the Social Security Act. They serve low-income patients and receive payments from the Centers for Medicare & Medicaid Services to cover the costs of providing care to uninsured patients. The United States government provides funding to hospitals that treat indigent patients through the DSH programs, under which facilities are able to receive at least partial compensation.
The Affordable Care Act (ACA) has expanded coverage and reduced levels of uncompensated care. It has also reformed Medicaid DSH allotments to reflect anticipated changes in coverage. States make Medicaid DSH payments to hospitals that serve a disproportionate share of low-income patients and have high levels of uncompensated care costs. The ACA directs that there be better targeting of this funding towards uncompensated care.
The Protecting Access to Medicare Act of 2014 required MACPAC to produce annual reports on Medicaid DSH payments, specifically to analyze how state allotments relate to changes in the number of uninsured individuals, amounts and sources of hospitals' uncompensated care costs, and the number of hospitals with high levels of uncompensated care that also provide access to essential community services for low-income, uninsured, and vulnerable populations.
A high level of uncompensated care factor (HUF) is incorporated into the DSH allotment reduction formula, resulting in larger percentage reductions for states that do not target DSH payments to hospitals with high levels of uncompensated care. A high uncompensated care hospital is one that exceeds the mean ratio of uncompensated care costs to total Medicaid and uninsured inpatient and outpatient hospital service costs for all DSH hospitals within a state.
To maximize their reimbursement, hospitals may use Medicaid eligibility vendors to assist in identifying Medicaid-eligible days. Urban hospitals with more than 100 beds can demonstrate that more than 30% of their total net inpatient care revenues come from state and local government sources for indigent care.
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Frequently asked questions
There are over 3,000 hospitals in the USA that receive disproportionate share (DSH) payments.
Disproportionate share hospitals are hospitals that serve low-income patients and receive payments from the Centers for Medicare & Medicaid Services to cover the costs of providing care to uninsured patients.
Disproportionate share hospitals are funded through the Disproportionate Share Hospital (DSH) programs by the US government. The hospitals receive partial compensation for treating indigent patients.
To be considered a disproportionate share hospital, the hospital must have a disproportionate share adjustment percentage greater than 11.75%. Additionally, they must serve a high proportion of Medicaid beneficiaries and other low-income patients.
The COVID-19 pandemic significantly impacted hospital finances, with hospitals reporting increased costs for charity care and bad debt. The American Rescue Plan Act provided additional funding for disproportionate share hospitals, but these allotments are expected to phase out as the pandemic ends.
