Cuts In Medicaid Disproportionate Share Funding Challenge Safety-Net Hospitals Interview with
Katherine Neuhausen, MD, MPH
Director of Delivery System Transformation, Office of Health Innovation
Clinical Assistant Professor, Department of Family Medicine and Population Health
Virginia Commonwealth University

MedicalResearch: What are the main findings of the study?

Dr. Neuhausen: Medicaid Disproportionate Share Hospital (DSH) payments keep safety-net hospitals financially viable because these hospitals play such a critical role caring for the uninsured and Medicaid patients, providing trauma care and other vital community services, and training future health providers.  The Affordable Care Act (ACA) reduces these DSH payments because the ACA’s authors assumed that safety-net hospitals would receive increased revenue from Medicaid expansion and therefore, have less need for DSH payments.  However, we found that California’s DSH need will actually increase because of medical cost inflation, low Medicaid payment rates, and the high number of people who will remain uninsured.  As a result, the DSH reductions will create funding gaps that must be filled to ensure the financial stability of safety-net hospitals.  The financial outlook for California’s safety-net hospitals is still much better under ACA than it would have been without the ACA.  In the absence of the ACA, California’s public hospitals would have had an additional $1.5 billion in costs for uncompensated care for the uninsured and would be facing a financial crisis.

MedicalResearch: Were any of the findings unexpected?

Dr. Neuhausen: It was unexpected that while the ACA will decrease the number of uninsured people in California, uncompensated costs for the uninsured will not decrease nearly as much.  This is because the rise in DSH costs is primarily driven by medical cost inflation.   The safety net faces the same challenge of escalating costs that is pervasive across our entire health care system.  Health care costs have been dramatically growing and were a problem long before ACA was enacted.  If anything, growth in health care spending has been less since ACA was enacted.  Controlling health care spending is the fundamental challenge focusing California hospitals and hospitals across the country.

MedicalResearch: What should clinicians and patients take away from your report?

Dr. Neuhausen: American medicine across the board has to deliver better care at lower cost for both the insured and uninsured populations.  This is the greatest challenge faced by our entire health care system.  Health care cannot continue to claim an ever larger share of the United States economy.  Clinicians working at both public and private hospitals will need to deliver higher value care at lower costs to ensure their financial stability and the country’s fiscal health.  Patients will need to start comparing hospitals based on quality and costs and seek the highest value care.

MedicalResearch: What recommendations do you have for future research as a result of this study?

Dr. Neuhausen: These cuts create challenges for California safety-net hospitals but will be much worse for safety-net hospitals in other states that opt out of the ACA’s Medicaid expansion.  Researchers in other states should examine the impact of the DSH reductions on the financial viability of safety-net hospitals that will not experience the increased revenues from Medicaid expansion.  Also, they should help policymakers monitor the financial stability of safety-net hospitals over the next few years to ensure that these vital community resources are not struggling as DSH payments are reduced.


Disproportionate-Share Hospital Payment Reductions May Threaten The Financial Stability Of Safety-Net Hospitals
Health Aff (Millwood). 2014 Jun 1;33(6):988-96. doi: 10.1377/hlthaff.2013.1222.

Neuhausen K1, Davis AC2, Needleman J3, Brook RH4, Zingmond D5, Roby DH6.


Last Updated on June 7, 2014 by Marie Benz MD FAAD