Disproportionate-share Hospital Payment Reductions May Threaten the Financial Stability of Safety-Net Hospitals

Published in: Health Affairs, Vol. 31, No. 8, Aug. 2012, p. 1767-1776

Posted on RAND.org on June 01, 2014

by Katherine Neuhausen, Anna C. Davis, Jack Needleman, Robert H. Brook, David Zingmond, Dylan H. Roby

Read More

Access further information on this document at content.healthaffairs.org

This article was published outside of RAND. The full text of the article can be found at the link above.

Safety-net hospitals rely on disproportionate-share hospital (DSH) payments to help cover uncompensated care costs and underpayments by Medicaid (known as Medicaid shortfalls). The Affordable Care Act (ACA) anticipates that insurance expansion will increase safety-net hospitals' revenues and will reduce DSH payments accordingly. We examined the impact of the ACA's Medicaid DSH reductions on California public hospitals' financial stability by estimating how total DSH costs (uncompensated care costs and Medicaid shortfalls) will change as a result of insurance expansion and the offsetting DSH reductions. Decreases in uncompensated care costs resulting from the ACA insurance expansion may not match the act's DSH reductions because of the high number of people who will remain uninsured, low Medicaid reimbursement rates, and medical cost inflation. Taking these three factors into account, we estimate that California public hospitals' total DSH costs will increase from $2.044 billion in 2010 to $2.363–$2.503 billion in 2019, with unmet DSH costs of $1.381–$1.537 billion.

This report is part of the RAND Corporation External publication series. Many RAND studies are published in peer-reviewed scholarly journals, as chapters in commercial books, or as documents published by other organizations.

Our mission to help improve policy and decisionmaking through research and analysis is enabled through our core values of quality and objectivity and our unwavering commitment to the highest level of integrity and ethical behavior. To help ensure our research and analysis are rigorous, objective, and nonpartisan, we subject our research publications to a robust and exacting quality-assurance process; avoid both the appearance and reality of financial and other conflicts of interest through staff training, project screening, and a policy of mandatory disclosure; and pursue transparency in our research engagements through our commitment to the open publication of our research findings and recommendations, disclosure of the source of funding of published research, and policies to ensure intellectual independence. For more information, visit www.rand.org/about/research-integrity.

The RAND Corporation is a nonprofit institution that helps improve policy and decisionmaking through research and analysis. RAND's publications do not necessarily reflect the opinions of its research clients and sponsors.