Academic journal article Inquiry

Medicaid Disproportionate Share Hospital Payment: How Does It Impact Hospitals' Provision of Uncompensated Care?

Academic journal article Inquiry

Medicaid Disproportionate Share Hospital Payment: How Does It Impact Hospitals' Provision of Uncompensated Care?

Article excerpt

This study examines the association between hospital uncompensated care and reductions in Medicaid Disproportionate Share Hospital (DSH) payments resulting from the 1997 Balanced Budget Act. We used data on California hospitals from 1996 to 2003 and employed two-stage least squares with a first-differencing model to control for potential feedback effects. Our findings suggest that nonprofit hospitals did reduce provision of uncompensated care in response to reductions in Medicaid DSH, but the response was inelastic in value. Policymakers need to continue to monitor uncompensated care as sources of support for indigent care change with the Patient Protection and Affordable Care Act (ACA).

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A growing number of individuals in the United States do not have health insurance. Census Bureau data indicate the number of uninsured increased dramatically from 31 million in 1987 to 50.7 million in 2009 (U.S. Census Bureau 2010). In the U.S. health system, the uninsured often rely on hospitals to provide charity care, or more broadly defined, uncompensated care (Bazzoli et al. 2006; Davidoff et al. 2000; Lo Sasso and Seamster 2007). Existing studies estimated the overall amount of hospital uncompensated care costs at about $23.6 billion in 2001(Hadley and Holahan 2003) and $35 billion in 2008 (Hadley et al. 2008). In order to offset the burden from this type of care, hospitals rely on various types of public and private financial support from federal, state, and local governments or private philanthropy (Fishman and Bentley 1997; Hadley et al. 2005; Hadley and Holahan 2003).

The Medicaid Disproportionate Share Hospital (DSH) program is a major funding source for safety-net hospitals and provides funding to support free and discounted care for uninsured and Medicaid patients. The Medicaid DSH program accounted for approximately 10.2% of total Medicaid expenditures in 1997 and 4.9% in 2009. (1) The program supported about 36% of total uncompensated care costs for hospitals in 2001 and about 30% in 2008 (Hadley et al. 2005; Hadley and Holahan 2003; Hadley et al. 2008). In the early 1990s, Medicaid DSH payments expanded rapidly. Medicaid DSH spending grew from less than $1 billion in 1990 to more than $17 billion in 1992. To limit this dramatic growth, Congress implemented several major reforms that cap the amount of DSH spending. (2) In 1997, the Balanced Budget Act (BBA) further limited Medicaid DSH payments by reducing state-specific federal allotments (3) nationally by $10.4 billion over the period 1998-2003 (CBO 1997). Medicaid DSH reductions represented the major sources of federal BBA Medicaid savings, specifically accounting for 61% of total Medicaid gross savings over five years. After the BBA, Congress passed the Balanced Budget Refinement Act (BBRA) in 1999. This law eliminated the BBA DSH cuts for federal fiscal year (FFY) 2001 and FFY 2002, and also provided relief by setting 2001 state-specific allotments at 2000 levels, adjusted for inflation, and setting 2002 allotments at 2001 levels, adjusted for inflation. However, the Benefit and Improvement Protection Act (BIPA) of 2000 let the full BBA DSH reductions become effective in FFY 2003 (Mechanic 2004).

Our study examines how changes in Medicaid DSH payments resulting from the BBA affected hospital provision of uncompensated care in California. California is a state with a high rate of uninsured individuals, and thus historically received relatively large amounts of Medicaid DSH payments. Califorina was also substantially affected by the BBA, with its state-specific federal Medicaid DSH allotment declining from $1,085 million in 1998 to $890 million in 2003 (Federal Register 2004). We expand existing knowledge about the effects of payment policy on hospital care provided to uninsured patients. In addition, we consider policy factors other than Medicaid DSH that may affect hospital provision of uncompensated care. The 2010 Patient Protection and Affordable Care Act (ACA) calls for much of existing Medicaid and Medicare DSH funding to be redirected to subsidize individual health insurance purchase to expand coverage nationally (CMS 2010; Kaiser 2010a, 2010b; Katz 2010). …

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