Safety-net hospitals harmed by supplemental payment 'slippage'

By Alex Kacik / December 5, 2022

Supplemental payments that aim to stabilize safety-net hospitals are often misallocated, a new study shows.

Nearly a third of Medicaid disproportionate-share hospital payments in 2015—the latest data available—went to hospitals that provided less uncompensated care than the median level in their respective states, according to an analysis of DSH payment data from 2011 to 2015 published Monday in the peer-reviewed Health Affairs journal. Uncompensated care is the sum of patients’ outstanding bills known as bad debt and charity care.

More than 3% of the $14.5 billion distributed in Medicaid DSH payments in 2015 went to hospitals that did not meet any of the criteria related to uncompensated care, meeting the median state-specific threshold for Medicaid utilization and/or reaching a low-income utilization rate of at least 25%, according to the study. The program should be tweaked, such as by boosting transparency or consolidating the Medicare and Medicaid DSH programs to ensure that hospitals with the greatest need are receiving the supplemental payments, researchers said.

DSH payments represent one element of a complex state and federal financing system that aims to bolster hospitals that care for the most vulnerable—but research has shown can fail. For instance, state agencies can make DSH payments to government-owned hospitals and divert those payments back to the state’s Medicaid agency via intergovernmental transfers.

Part of the problem is these financing mechanisms are often hidden in a “black box,” said Dr. Paula Chatterjee, an assistant professor of medicine at the University of Pennsylvania and lead author of the study.

“Step one here is to make data on DSH more transparent,” she said. “The states have a lot of flexibility in implementing the programs, but we don’t know much about the state-level decision-making process.”