Identifying hospitals that may be at most financial risk from Medicaid disproportionate-share hospital payment cuts

Abstract

Medicaid disproportionate-share hospital (DSH) payments are expected to decline by $35.1 billion between fiscal years 2017 and 2024, a reduction brought about by the Affordable Care Act (ACA) and recent congressional action. DSH payments have long been a feature of the Medicaid program, intended to partially offset uncompensated care costs incurred by hospitals that treat uninsured and Medicaid populations. The DSH payment cuts were predicated on the expectation that the ACA's expansion of health insurance to millions of Americans would bring about a decline in many hospitals' uncompensated care costs. However, the decision of twenty-five states not to expand their Medicaid programs, combined with residual coverage gaps, may leave as many as thirty million people uninsured, and hospitals will bear the burden of their uncompensated care costs. We sought to identify the hospitals that may be the most financially vulnerable to reductions in Medicaid DSH payments. We found that of the 529 acute care hospitals that will be particularly affected by the cuts, 225 (42.5 percent) are in weak financial condition. Policy makers should recognize that decreases in revenue may affect these hospitals' ability to give vulnerable populations access to care.

Keywords: Financing Health Care; Health Reform; Hospitals; Medicaid; Safety-Net Systems.