G N Y H A P O S I T I O N PA P E R

555 WEST 57TH STREET, NEW YORK, NY 10019 • T (212) 246-7100 • F (212) 262-6350 • WWW.GNYHA.ORG • PRESIDENT, KENNETH E. RASKE

MEDICAID DSH PAYMENTS

The Medicaid disproportionate share hospital (DSH) program provides payments to safety net hospitals that
serve a high proportion of Medicaid beneficiaries and uninsured patients. The payments are essential for these
hospitals to offset their uncompensated care costs from treating low-income patients. Because DSH hospitals
usually have a low percentage of commercially insured patients, they cannot cost-shift these losses to private
insurance companies.

The amount of Federal DSH funds a state can receive
is limited by state-specific allotments established by
the Balanced Budget Act (BBA) of 1997, which are
updated annually by the Bureau of Labor Statistics’
Consumer Price Index. In Fiscal Year (FY) 2018, New
York State received $1.8 billion of the $12.3 billion in
Medicaid DSH funding that was allotted nationally.
Like regular Medicaid payments, states must pro-
vide local funds (the percentages vary by state) to
receive Federal DSH funds. States have flexibility to
determine the distribution of DSH funding to individ-
ual hospitals, but the Federal government caps the
amount of DSH funding that individual hospitals can
receive at their “DSH cap”—their losses from treat-
ing Medicaid patients and the uninsured.
Hospital Uncompensated Care Trends under the ACA
The Affordable Care Act (ACA) cut Federal Medic-
aid DSH funding under the assumption that fewer
uninsured Americans would mean less hospital un-
compensated care—and therefore less need for DSH
funding—but that simply hasn’t been the case.
In reality, between 2013 and 2014, DSH hospitals—in
both states that expanded their Medicaid programs
under the ACA and those that did not—experienced
an aggregate overall increase in uncompensated
care. And while hospital losses from treating unin-
sured patients decreased under the ACA, the reduc-
tion was more than offset by an increase in Medicaid
losses.1
New York hospitals experienced the same trend.
From 2013 to 2014, their total uncompensated care
losses increased by $645 million, which reflects an
$835 million increase in Medicaid losses offset by a
reduction in their losses from treating uninsured pa-
tients of $190 million.2 Moreover, in 2014, New York
hospitals reported losing $4.3 billion from treating

1 Medicaid and CHIP Payment Advisory Commission, public meeting materials from October 25, 2018.
2 GNYHA analysis of CMS Medicaid DSH cap audit data, 2013 and 2014.

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mission—helping hospitals deliver the finest patient care in the most cost-effective way—never changes.
G N Y H A | P O S I T I O N PA P E R
Medicaid patients, representing nearly 70% of their
total reported uncompensated care for Medicaid
DSH purposes (i.e., losses from treating Medicaid
and uninsured patients).
It is therefore critical that Congress maintain Medic-
aid DSH funding at its current levels.
How the ACA Impacted Medicaid DSH
Originally scheduled for FYs 2014–20, the ACA’s
Medicaid DSH cuts have been legislatively delayed
and restructured several times. The cuts are currently
scheduled for FYs 2020–25, beginning with a $4 bil-
lion reduction in FY 2020 and increasing to $8 billion
for FYs 2021–25 (the cuts then expire).
Federal Medicaid DSH Cuts in Billions
2020 2021 2022 2023 2024 2025
-4
-8 -8 -8 -8 -8
GNYHA Position: GNYHA strongly urges Congress to further delay the Medicaid DSH cuts. DSH funding
is essential to ensuring that financially struggling safety net hospitals can continue to serve low-income
individuals and vulnerable communities.
555 WEST 57TH STREET, NEW YORK, NY 10019 • T (212) 246-7100 • F (212) 262-6350 • WWW.GNYHA.ORG • PRESIDENT, KENNETH E. RASKE
The ACA requires the Centers for Medicare & Medicaid
Services (CMS) to develop a methodology to reduce
Federal Medicaid DSH allotments by the above-spec-
ified amount each year. The largest reductions are to
be imposed on the states with the lowest percentage
of uninsured individuals, and those that do not target
their DSH payments to hospitals with high volumes of
Medicaid patients and uncompensated care. Smaller
reductions are to be imposed on low-DSH states (de-
fined as states with total DSH payments of between
zero and 3% of total Medicaid spending).
Under an FY 2017 CMS proposed rule to allocate
Medicaid DSH reductions among states, New York
would lose $650 million in FY 2020 and $1.3 billion
annually during FYs 2021–25.
These are unsustainable cuts for New York’s struggling
public and voluntary safety net hospitals, especially
considering CMS’s recent cut to Medicare DSH fund-
ing. New York has 26 voluntary hospitals already on a
State “watch list” because of their precarious financial
position, with many public and other voluntary hos-
pitals also experiencing severe financial distress. The
Medicaid DSH cuts could force some of them to re-
duce services or even close their doors for good.