The New Medicaid Expansion Opt-In and Disproportionate Share Hospitals

Inside baseball — inside the fairly insular world of hospital finance — one of the most widely discussed ACA provisions has always been the re-invention of the treatment of disproportionate share hospitals (DSH) under the ACA.  Often referred to as the end of DSH, the ACA might more accurately be described as an attempt to re-invent DSH.  Of course, the Supreme Court's re-invention of the ACA's Medicaid expansion provisions  has highlighted the way this re-invention of DSH was supposed to be executed.

What is DSH?  Well, there are really two flavors of DSH: Medicaid DSH and Medicare DSH. Generally, DSH  is a system of Medicaid and Medicare triggered payment adjustments, designed to offer federal funds to partially offset the high cost of being a hospital that disproportionately serves the uninsured, the underinsured, and the low income.  Pegged to Medicaid eligbility, Medicaid DSH payments always bore the mark of that program: incredibly uneven geographic distribution. 

Under the ACA's planned federalization of Medicaid's eligibility standards, this was to stop.  DSH payments were to be drastically cut back under the ACA, producing a considerable amount of anxiety in hospital circles everywhere but particularly in states considering opting out of the ACA Medicaid expansion.

Why the fear?  The federalization of Medicaid was specifically struck down in NFIB v. Sebelius.  Even if you are among the camp that thinks a majority of states will eventually opt-in to Medicaid expansion (as am I), you may not think this will necessarily be speedy or pretty. In the meantime, the squeeze will already be on Medicaid DSH payments.

So, hospital administrators in Kansas and Missouri must be afraid. Very afraid. 

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