In fiscal year 2009, Ohio hospitals received nearly $408 million in Federal disproportionate share hospital (DSH) payments. One provision of the Patient Protection and Affordable Care Act (ACA)—coupled with Ohio’s methodology for determining how DSH payments are allocated—will reduce important funding for Ohio’s safety net hospitals.
In the early 1980s, Federal legislation established a requirement that States consider special payment needs of hospitals that serve a large portion of Medicaid and uninsured patients. The rationale for the DSH program was that hospitals that provide high volumes of care to low-income patients often lose money as a result of low Medicaid reimbursement and high levels of uncompensated care. Moreover, unlike other hospitals, they have fewer privately insured individuals onto which the costs of uncompensated care can be shifted.
In large part, high-DSH hospitals are either public hospitals, children’s hospitals, hospitals located in areas of greater economic distress, or private non-profit hospitals with a mission of providing access to care regardless of ability to pay.
Full implementation of the ACA in 2014 will add approximately 15 million Americans—nearly 1 million of them Ohioans—to the Medicaid program, thanks to expansion of the program to anyone younger than 65 with an annual income of up to 138% of the Federal poverty level—$31,809 a year for a family of four in 2012. In order to generate proposed savings to the health care system, and because the ACA will expand coverage to millions of currently uninsured Americans, Congress targeted Medicaid DSH payments for a reduction, reasoning that the program won’t need to be funded at its current level because hospitals currently receiving DSH payments to cushion the blow of providing uncompensated care will instead receive reimbursement from Medicaid or other insurance plans.
DSH payments will decrease by $14.1 billion between 2014 and 2020, with the reduction per year more heavily weighted towards the end of the decade. DSH cuts will be split among States based on the overall size of DSH participation per State. When making DSH allocation decisions, the HHS Secretary is instructed to make the biggest reductions to States with the lowest percentage of uninsured individuals or to States that do not target their DSH payments to hospitals with high Medicaid caseloads and high levels of uncompensated care.
In the aggregate, the reduction of DSH payments is a means of equalizing the benefit to providers of the increase in payments resulting from patients with newly issued insurance coverage. However, the disturbing reality is that these cuts to DSH payments will occur, while the projected decrease in uninsured or underinsured patients is not assured—it may vary drastically from one provider to another, creating unintended winners and losers. The ACA does not require that Medicaid DSH reductions be tied directly to increases in insurance coverage. Rather, they will be based on a State’s population of uninsured individuals and its methodology for distributing DSH payments.