Uncompensated Care in States That Do Not Expand Medicaid: A State-Level Simulation

December 20, 2012: States forgoing the Affordable Care Act Medicaid expansion are likely to leave a substantial uncompensated care burden on hospitals.  This is the conclusion of a newly-released New England Journal of Medicine perspective piece by SHARE grantee John Graves, Ph.D., Assistant Professor at Vanderbilt University School of Medicine.  In the article, Dr. Graves provides a state-level analysis of the Affordable Care Act’s scheduled reductions to Disproportionate Share Hospital, or “DSH,” payments. 

Background: What are DSH Payments?

DSH payments are special payments to hospitals that provide a disproportionate amount of care to low-income individuals.  The payments are meant to make up for uncompensated care provided to the low-income uninsured and for the lower reimbursement rates paid for care provided to individuals covered through Medicaid.   As such, the amount of DSH funds distributed to a state correlates with a state’s overall level of uninsurance.

The premise of the ACA’s DSH reductions is that as more of the currently uninsured gain coverage through the expansion of Medicaid, hospitals should see a reduction in their uncompensated or charity care.  However, with the Supreme Court ruling that states can opt out of the Medicaid expansion without penalty, the expansion of coverage to the low-income uninsured is no longer a given.  The DSH reductions scheduled under the ACA will still take place even if a state does not elect to expand Medicaid, although the reductions will be tempered in nonexpansion states (since DSH payments are still connected to uninsurance rates).  This scenario could leave some hospitals with diminished DSH funds despite seeing little or no change in the amount of uncompensated care they provide.

Simulation of DSH Reductions

Dr. Graves simulated the scheduled reductions to DSH payments for each state under full Medicaid expansion and under no expansion to estimate the impact on the amount of uncompensated care provided by hospitals under both scenarios.  He conducted this simulation by combining coverage and income data from the American Community Survey (ACS) with state data on Medicaid Disproportionate Share Hospital (DSH) allotments and Medicare cost reports submitted by all acute care hospitals. 

The simulation indicates considerable variation among states under both scenarios, but Dr. Graves observes “non-trivial” reductions in DSH funding in nearly every state even under the nonexpansion scenario (i.e., with lighter reductions).  This means that without federal changes to DSH payment formulas, hospitals in states forgoing Medicaid expansion are likely to face a significant uncompensated care burden. 

More Information

The findings from Dr. Graves’s NEJM piece are drawn from the SHARE-funded study on which Dr. Graves is the principal investigator and for which he is employing a novel reweighting method leveraging the frequency, detail and statistical power of national surveys to facilitate more precise state and local estimates of coverage and access to care.  The study will ultimately link estimates of insurance coverage expansion populations to estimates of the health care workforce and medical care system capacity to highlight areas with potential access concerns.

The information in this blog post draws on the SHADAC blog post titled “ACA Data Note: Hospitals, Medicaid Expansion, and Disproportionate SHARE Hospital Payments,” by SHADAC Director Lynn Blewett.