Isaac Rogers
1 March, 2015
Prof. Watson
PHSC 2
ACA Section 2551 Disproportionate Share Hospital Payments The Federal Government provides supplemental funding to “disproportionate share” hospitals (DSH) which are hospitals that serve a large number of Medicaid, low-income, and uninsured patients. Under federal law, state Medicaid programs must take into account the situation of these hospitals and provide a supplemental payment to the normal reimbursement the hospital would receive under Medicaid for inpatient services. These supplemental payments, known as DSH payments, are determined by a hospital’s disproportionate patient percentage, which is the sum the Medicaid fraction and the Medicare and Supplemental Security Income fraction expressed as a percentage. In many cases, disproportionate share hospitals which are often times called “safety net” hospitals rely on this Federal compensation for financial stability. Which hospitals receive DSH compensation, and the amount of compensation is determined by each state. The affect of the passage of the Affordable Care Act on the uninsured population is significant. The Congressional Budget Office estimates that an expansion of public health care programs and the availability of new health insurance coverage options under the ACA will reduce the number of uninsured by 32 million. Keeping such expectations in mind, the ACA proposes policy for reducing DSH payments to reflect lower uncompensated care costs relative to increases in the number of insured. Section 2551 of the Affordable Care Act is one of two sections that is concerned with reducing disproportionate share hospital payments. Specifically, section 2551 reduces States’ disproportionate share hospital (DSH) allotments by 50 percent once the rate of uninsurance in a State decreases by 45 percent (low DSH States would receive a 25 percent reduction). As the rate of uninsurance continues to decline, the States’ DSH allotments would be reduced by a corresponding amount. The statute requires annual aggregate reductions in federal DSH funding from 2014 through 2020. The aggregate annual reduction amounts are as follows: The expanded medicaid and the annually reduced DSH payments of the ACA create a trade-off for hospitals: it promises to dramatically reduce the amount of uninsured (uncompensated) patients the hospital treats while at the same time nearly eliminating the bonus reimbursements (DSH payments) hospitals receive to help cover the costs of uncompensated care. I support section 2551 of the ACA and the decision to reduce DSH payments over the next five years because it strongly encourages states to adopt the expanded Medicaid provisions of the ACA which is estimated to create 172,400 jobs during 2015 and create $168 billion in new revenue for hospitals, completely offsetting the reduction of DSH payments. Some may argue that section 2551 doesn't encourage states to incorporate the expanded Medicaid because states that implement the Medicaid expansion could see fewer uninsured and therefore see larger percentage reductions in DSH compared to states that do not implement the expansion. However, as I stated above, states that implement the Medicaid expansion will see new patient revenues associated with new Medicaid coverage that will offset the DSH reductions while states that do not move forward will not see new revenues from new Medicaid coverage but continue to see high uncompensated care costs. As the DSH reductions increase, states will be forced to weigh the fiscal gains of new coverage against the reduction in DSH for hospitals and find that expanding Medicaid is necessary. Twenty-four states have not expanded Medicaid eligibility to adults with incomes at or below 138 percent of the federal poverty level, as permitted by the ACA. As a result, 6.7 million residents are projected to remain uninsured in 2016. These 24 states are foregoing $423.6 billion in federal Medicaid funds from 2013 to 2022, which will lessen economic activity and job growth. The Council of Economic Advisers (CEA) recently concluded that expanding Medicaid under the ACA boosts state economic growth and employment, primarily by bringing in significant new federal funding to buy additional health care within the state. According to CEA’s estimates, Medicaid expansion would add, in non-expanding states, “78,600 jobs in 2014, 172,400 jobs in 2015, and 98,200 jobs in 2016”. The combination of increased private and Medicaid coverage is expected to yield hospital revenue that offsets the ACA’s “$22 billion in Medicaid cuts to disproportionate share hospital payments, $34 billion in Medicare disproportionate share hospital cuts, and $260 billion in Medicare fee-for-service cuts during 2013–2022”. In nonexpansion states, hospitals will pay the full cost of the ACA’s funding mechanisms. Thus, by reducing DSH payments with section 2551 of the ACA, the Federal Government is essentially forcing states to adopt the beneficial Medicaid expansion. It is for this reason that I support section 2551 of the ACA. Some people still argue that the ACA's DSH reduction is a mistake because Medicaid expansion increases hospital costs by increasing utilization. In addition, they argue that expansion lowers hospitals’ private insurance revenue by “raising the financial eligibility for marketplace subsidies from 100 to 138 percent”. However, these two factors are significantly outweighed by the increase of $168 billion in new Medicaid revenue hospitals would receive due to Medicaid expansion. The image below shows how the new DSH payment reductions will be instated in financial year 2014.

Works Cited
Davis, Corey. "Q & A: Disproportionate Share Hospital Payments and the Medicaid Expansion." National Health Law Program. National Health Law Program, 1 July 2012. Web. 01 Mar. 2015. <http://www.healthlaw.org/publications/qa-disproportionate-share-hospital-payments-and-the-medicaid-expansion#.VPP3NFPF8pB>.

"Disproportionate Share Hospital." Wikipedia. Wikimedia Foundation, 24 May 2014. Web. 01 Mar. 2015. <http://en.wikipedia.org/wiki/Disproportionate_share_hospital>.

Dorn, Stan, Megan McGrath, and John Holahan. "What Is the Result of States Not Expanding Medicaid?" Timely Analysis of Immediate Health Policy Issues (2014): n. pag. Urban Institute. Robert Wood Johnson Foundation, Aug. 2014. Web. 1 Mar. 2015. <http://www.urban.org/UploadedPDF/413192-What-is-the-Result-of-States-Not-Expanding-Medicaid.pdf>.

"How Do Medicaid Disproportionate Share Hospital (DSH) Payments Change Under the ACA?" The Kaiser Commission on Medicaid and the Uninsured (2013): n. pag. Nov. 2013. Web. 1 Mar. 2015. <https://kaiserfamilyfoundation.files.wordpress.com/2013/11/8513-how-do-medicaid-dsh-payments-change-under-the-aca.pdf>.

Moran, Mark. "States’ Decision on Expanding Medicaid Will Impact Inpatient Psychiatric Care." Psychiatric News (n.d.): n. pag. Web. 1 Mar. 2015. <http://psychnews.org/pdfs/medicare_4_9.pdf>.