Tessa Quinn
Disproportionate Share Hospitals (DSH) are hospitals that serve a disproportionate number of low-income and uninsured patients. To offset the costs of providing care to this vulnerable population, these hospitals receive additional payments from the government, known as DSH payments. The United States government provides funding to DSH hospitals through the Medicaid and Medicare programs, with the aim of improving access for Medicaid and uninsured patients and enhancing the financial stability of safety-net hospitals. In recent years, there has been a focus on reforming DSH payments to ensure that funds are distributed equitably among states and hospitals with high volumes of uninsured and Medicaid patients. As of 2024, approximately 3,109 hospitals receive DSH adjustments, with a significant concentration of payments going to large hospitals in urban areas.
| Characteristics | Values |
|---|---|
| Number of hospitals receiving disproportionate share payments | 3,109 |
| Percentage of payments going to large hospitals in urban areas | 93% |
| Percentage of payments going to teaching hospitals | 65% |
| Total DSH payments in FY 2021 | $18.9 billion |
| State funds contribution to DSH payments in FY 2021 | $8.1 billion |
| Federal funds contribution to DSH payments in FY 2021 | $10.8 billion |
| Year states began making Medicaid DSH payments | 1981 |
| Year of CMS Ruling "CMS-1498-R" | 2010 |
| Year of amended CMS Ruling "CMS-1498-R2" | 2015 |
| Year of CMS Ruling 1498-R3 | 2024 |
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What You'll Learn
Medicaid DSH payments
Medicaid Disproportionate Share Hospital (DSH) Payments are statutorily required payments intended to offset hospitals' uncompensated care costs to improve access for Medicaid and uninsured patients. They also aim to improve the financial stability of safety-net hospitals. Federal law requires that state Medicaid programs make DSH payments to qualifying hospitals that serve a large number of Medicaid and uninsured individuals.
The DSH program has been in place since the early 1980s and provides vital financial support to hospitals serving the nation's most vulnerable populations. This includes children, pregnant women, older adults, veterans, and other low-income patients with Medicaid coverage, as well as the uninsured. In fiscal year (FY) 2021, Medicaid made a total of $18.9 billion in DSH payments ($8.1 billion in state funds and $10.8 billion in federal funds).
The amount of DSH payments has been a concern, with Congress reducing Medicaid DSH payments in the Affordable Care Act, reasoning that hospitals would care for fewer uninsured patients as health coverage expanded. However, those coverage increases have not yet been fully realized. Additionally, the Medicaid DSH cut for FY 2026 is $8 billion, and the program is scheduled to be reduced by another $8 billion in each of the next two fiscal years, resulting in a total reduction of $24 billion over three fiscal years.
The distribution of DSH payments has also been an issue. Medicare DSH payments are highly concentrated, with 93% going to large hospitals in urban areas, and 65% going to teaching hospitals. To address this, a methodology has been proposed to distribute DSH reductions in a manner that imposes the largest reduction in states with the lowest percentage of uninsured and targets states with high volumes of uninsured and Medicaid inpatients.
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Uncompensated care costs
In the United States, the American Hospital Association (AHA) publishes data on hospitals' uncompensated care costs, which are expressed in terms of costs rather than charges. The AHA's data does not include Medicaid or Medicare underpayment costs. Uncompensated care costs for the nation's uninsured averaged $42.4 billion per year in the 2015-2017 period, a significant decline from $62.8 billion per year in 2011-2013 due to the implementation of the Affordable Care Act's coverage expansion.
To offset these costs, the federal government, states, and localities provide funding to hospitals that serve a disproportionate share of low-income and uninsured patients through programs such as the Veterans Health Administration and Medicaid Disproportionate Share Hospital (DSH) payments. In fiscal year 2021, Medicaid made a total of $18.9 billion in DSH payments, with $8.1 billion coming from state funds and $10.8 billion from federal funds. These payments are intended to improve access for Medicaid and uninsured patients and enhance the financial stability of safety-net hospitals.
While public funding helps to defray providers' uncompensated care costs, the rise in the number of uninsured individuals since 2017 may have led to an increase in these costs. The economic downturn caused by the COVID-19 pandemic has also potentially contributed to the growing number of uninsured people in the United States. Policymakers' efforts to expand coverage and address the financial impact of the pandemic are crucial in managing uncompensated care costs and ensuring access to healthcare for the uninsured.
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Medicare DSH adjustments
The United States government provides funding to hospitals that treat indigent patients through the Disproportionate Share Hospital (DSH) programs. Under this program, hospitals are able to receive at least partial compensation for treating low-income patients. There are 3,109 hospitals that receive this adjustment. However, Medicare DSH payments are highly concentrated, with 93% of these payments going to large hospitals in urban areas.
The alternate method for qualifying for the Medicare DSH adjustment is for urban hospitals with more than 100 hospital beds. These hospitals must demonstrate that more than 30% of their total net inpatient care revenues, excluding Medicare or Medicaid, come from state and local government sources for indigent care.
The value of a hospital's DSH "index" determines its eligibility for a DSH payment and the size of the payment. This index is the sum of two ratios: the proportion of all Medicare days attributable to beneficiaries of Supplemental Security Income and the proportion of all patient days for which Medicaid is the primary payer.
The Medicare DSH adjustment provision was enacted by the Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985 and became effective for discharges occurring on or after May 1, 1986. It is important to note that the Medicare DSH payment is not subject to the Medicare upper payment limit, which has allowed states to make unlimited DSH payments and earn federal matching dollars.
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State and federal funding
The United States government provides funding to hospitals treating indigent patients through the DSH programs, allowing facilities to receive at least partial compensation. Medicaid DSH payments are statutorily required payments intended to offset hospitals' uncompensated care costs, improve access for Medicaid and uninsured patients, and enhance the financial stability of safety-net hospitals.
The history of DSH funding is quite interesting. States began making Medicaid DSH payments in 1981, when Medicaid hospital payments were delinked from Medicare payment levels. Initially, states were required to pay hospitals' reasonable costs, mirroring Medicare's hospital payment policies. However, as states gained broader discretion over hospital payments, Congress became concerned about the impact on hospitals serving a disproportionate number of Medicaid beneficiaries and the uninsured.
In 1991, Congress attempted to curb states' ability to claim federal matching funds by enacting the Voluntary Contribution and Provider-Specific Tax Amendments. These amendments included provisions such as banning provider donations, limiting provider taxes, imposing criteria on provider taxes, and capping state DSH payments. Despite these efforts, the practice of "recycling" continued, where states would keep a significant portion of the federal matching payment while returning the hospitals' contributions with a small increment. This led to rapid growth in federal DSH payments, surging from $1.4 billion to over $15 billion annually between 1990 and 1996.
The distribution of DSH payments varies across geographic areas. While 3,109 hospitals receive adjustments, 93% of Medicare DSH payments go to large hospitals in urban areas, and teaching hospitals account for 65% of total DSH payments. The Middle Atlantic, South Atlantic, and Pacific regions receive a disproportionately high share of DSH payments (60%) compared to their share of Medicare discharges (46%).
To qualify for Medicare DSH adjustments, hospitals can use one of several methods, including a complex statutory formula that considers factors such as location, the number of beds, and status as a rural referral centre. Additionally, the Medicare DSH adjustment provision has been amended to provide for additional payments for hospitals' uncompensated care. As of FY 2014, hospitals receive 25% of what they would have received under the previous formula, with the remaining 75% becoming available for uncompensated care payments.
In summary, state and federal funding for hospitals serving a disproportionate share of low-income and uninsured patients have evolved through various legislative changes. The DSH program aims to provide partial compensation to hospitals treating indigent patients, with Medicaid DSH payments playing a crucial role in improving access and financial stability for safety-net hospitals.
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Eligibility and enrollment
Disproportionate Share Hospitals (DSH) are eligible to receive payments from the Centers for Medicare & Medicaid Services to cover the costs of providing care to uninsured patients. These hospitals primarily serve low-income patients who are not eligible for Medicare or Medicaid.
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). Hospitals that fall under multiple categories for the 340B Drug Pricing Program must select only one category and follow the requirements and guidelines for that category once enrolled.
DSH hospitals must be classified under 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.
Furthermore, eligible hospitals must have a disproportionate share adjustment percentage greater than 11.75% for the most recently filed cost report.
Medicaid DSH payments are the largest source of federal funding for uncompensated care. These payments are intended to offset hospitals' uncompensated care costs and improve access for Medicaid and uninsured patients. In the fiscal year 2021, Medicaid made a total of $18.9 billion in DSH payments ($8.1 billion in state funds and $10.8 billion in federal funds).
The eligibility and enrollment process for DSH hospitals is outlined by federal and state regulations, with requirements that vary across states. The process ensures that hospitals serving a disproportionate number of low-income and uninsured patients receive the necessary support to improve access to healthcare services for these vulnerable populations.
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Frequently asked questions
3,109 hospitals receive disproportionate share payments.
Disproportionate share payments are statutorily required payments intended to offset hospitals' uncompensated care costs to improve access for Medicaid and uninsured patients.
In fiscal year 2021, Medicaid made a total of $18.9 billion in disproportionate share payments ($8.1 billion in state funds and $10.8 billion in federal funds).
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