Safety-net hospitals brace for $8B DSH allotment cuts: 7 things to know

The Medicaid and CHIP Payment and Access Commission is concerned that the magnitude of disproportionate share hospital cuts (54 percent in 2024) on the horizon will disrupt the financial viability of some safety-net hospitals and the services they provide, according to MACPAC's March report to Congress. 

Seven things to know: 

1. In December 2020, Congress delayed implementation of the 2021 disproportionate hospital share reductions until 2024 and extended DSH allotment reductions until 2027. Beginning Oct. 1, DSH allotments will be reduced by $8 billion a year from 2024 through 2027.

2. DSH funding remains a key revenue source for many safety-net hospitals. The DSH payments, first given to the states, are then passed on to hospitals that serve a large number of low-income patients. The total amount of these payments to hospitals is limited by this annual allotment. DSH payments to a hospital also cannot exceed the total amount of uncompensated care reported by the hospital. 

3. MACPAC previously recommended that should DSH allotment reductions go into effect, they should be phased in gradually to soften the blow to DSH hospital finances.Currently, DSH allotment cuts will amount to 54 percent of unreduced DSH allotment amounts in 2024, while scheduled reductions under previous legislation were applied more gradually.

4. Unreduced DSH allotments continue to increase each year based on inflation, so 2027 DSH allotment cuts will be a slightly smaller share of states' unreduced allotments (52.8 percent), according to the report. No DSH allotment reductions are scheduled after 2027, so state DSH allotments will return to their higher, unreduced DSH allotment amounts in 2028.

5. MACPAC has found no meaningful link between DSH allotments to states and the following factors: 

  • The number of uninsured individuals
  • The amount and sources of hospitals' uncompensated care costs
  • The number of hospitals with high levels of uncompensated care that also provide essential community services for low-income, uninsured and vulnerable populations

6. Medicaid shortfall, the difference between the Medicaid base payments a hospital receives and its costs of providing services to Medicaid beneficiaries, increased from $5.8 billion (31 percent) to $25 billion between 2019 and 2020, according to the American Hospital Association. However, the Medicaid payment-to-cost ratio has largely stayed the same since 2013.

7. Medicaid shortfall also varies significantly by state, according to the MACPAC report. Among DSH hospitals in 2018, Medicaid shortfall was 86 percent of costs before accounting for DSH payments and 95 percent of costs after accounting for DSH payments. The 12 highest paying states paid DSH hospitals 99 percent of costs before DSH payments and 112 percent of costs after DSH payments. The 12 lowest paying states paid DSH hospitals 77 percent of costs before DSH payments and 85 percent of costs after DSH payments.

Click here to access the full report.

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