Researchers analyzed the 20 acute care public hospitals that received 98.5 percent of California’s DSH allocation in 2010. DSH payments are meant to cover uncompensated care costs and Medicaid underpayments or shortfalls. However, the PPACA seeks to decrease uncompensated care through Medicaid expansion and the health insurance exchanges. Accordingly, to help cover the cost of Medicaid expansion, the law gradually reduces DSH payments. Medicaid DSH reductions will begin at $1.8 billion nationwide in fiscal year 2017 and reach $5 billion by fiscal year 2023.
Total DSH costs at the hospitals studied are expected to be between $2.36 and $2.5 billion in 2019, according to the researchers’ projections. Meanwhile, under the PPACA, uncompensated care costs for the uninsured are expected to fall from $1.85 billion in 2010 to $1.75 billion in 2019. Medicaid payment shortfalls will be an estimated $613 million in 2019. Under current PPACA policy, California’s DSH allocation could range from $826 million to $982 million, depending on whether other states improve their DSH targeting.
Overall, the study concluded California public safety-net hospitals could face $1.38 billion to $1.54 billion in residual uncompensated costs and Medicaid shortfalls in 2019. “These residual DSH costs would be substantially greater than the $937 million covered by other county, state, and federal funding sources in 2010, creating a DSH funding gap for California’s safety-net hospitals,” the study states.
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