Study: Safety-Net Hospitals Miss Out on Some Medicaid DSH Payments

December 14, 2022 - Over a third of Medicaid disproportionate share hospital (DSH) payments may have been misallocated, according to a study led by Weill Cornell Medicine and University of Pennsylvania investigators.

The study published in the December issue of Health Affairs found that the majority of Medicaid DSH payments in 2015 were well-targeted, meaning they went to hospitals that provided a disproportionate amount of uncompensated care by serving low-income and uninsured patients. These facilities are colloquially known as safety-net hospitals.

However, up to 31.6 percent of Medicaid DSH payments were allocated to hospitals that did not meet a given definition of a DSH facility, and 3.2 percent went to hospitals that met none of them.

Researchers only had data up to 2015, the most recent year for which data were available. But the study’s findings have serious implications for safety-net hospitals now as they face financial strain from the ongoing COVID-19 pandemic, surges of other respiratory viruses, and inflation.

“These findings indicate that opportunities exist for states to better align allocation of these subsidies with their intended purpose and improve support for hospitals that serve structurally marginalized patients,” said William Schpero, PhD, MPH, an assistant professor of population health sciences at Weill Cornell Medicine, who led the study with Paula Chatterjee, MD, MPH, an assistant professor of medicine at the University of Pennsylvania.

The Medicaid DSH program is one of the primary sources of financial subsidies for safety-net hospitals and other facilities that provide uncompensated care by serving low-income and uninsured patients. In the 2020 fiscal year alone, the program doled out nearly $20 billion in Medicaid DSH payments.

States administer the Medicaid DSH program in conjunction with the federal government, so state leadership has considerable discretion in how they allocate DSH payments to safety-net and other hospitals operating within their borders. For example, states may choose to allocate payments to other hospitals that provide at least 1 percent of their care to Medicaid patients, researchers explained.

“Historically, there's been some concern by policymakers that states, as a function of that discretion, are not allocating funds as intended by federal statute, and thus not allocating them to the hospitals most in need,” Schpero stated.

DSH allocations were “not as bad” as some policy observers expected, Schpero admitted. The study did find that almost 90 percent of Medicaid DSH payments during the study’s period did go to hospitals serving a high number of Medicaid patients and 60 percent went to hospitals with high levels of uncompensated care, the study showed.

However, reallocating payments on the basis of low uncompensated care share may bring state allocation methods more in line with Medicaid DSH program statute, researchers suggested. Additionally, they identified opportunities to revise DSH statute and regulations, including improving the timeliness and transparency of DSH payment data for better measurement, identification of poor targeting, and oversight by the federal government.

“If DSH payment data, along with information on other supplemental payments, were comprehensive and standardized, then state policy makers might be more likely to apply them to inform targeting in practice,” they wrote in the study.

They also recommended that the DSH program move away from tying payments to measures of utilization and address redundancies between Medicare and Medicaid DSH programs.

“Effective targeting of Medicaid DSH payments is important because it is associated with better patient outcomes,” the study stated. “Evidence on DSH payments from the early 2000s demonstrated that receipt of these payments by hospitals serving low-income patients was associated with improvements in mortality and outcomes related to hospital-amenable conditions. As safety-net hospitals perform less well on certain quality measures, better targeting of DSH payments could support the investments needed to improve quality and outcomes.”