The failure to effectively target federal safety-net funding for hospitals has, for decades, lowered the quality of care and outcomes for safety-net patients, particularly for those of color. That’s according to LDI Senior Fellow and Perelman School of Medicine’s Paula Chatterjee, MD, MPH, writing in a recent JAMA Health Forum Viewpoint focused on the Medicaid Disproportionate Share Hospital (DSH) Payment Program.

Along with identifying the current problems in the DSH program, Chatterjee’s Viewpoint piece, entitled “Realigning Reality with Intent in Funding Safety-Net Hospitals,” offers four recommendations to address those problems.

Created in 1981 and revised in 2016, the DSH program was originally designed to provide funding to cover the uncompensated care provided by a subset of safety-net hospitals to large populations of low-income and uninsured patients. The intention was to ensure that such hospitals could remain financially viable and provide high-quality care to patients who were often unable pay for their care. Then, like today, many safety net hospitals would not be financially stable enough to remain in operation without the DSH funding.

30% of Funds Go Elsewhere

Between $20 and $25 billion in combined state and federal annual funding is provided for allocation to state safety-net care facilities but, according to Chatterjee, about 30% of that total–or approximately $7.5 billion–could be better targeted to hospitals that need this type of financial support most.

“The fact that there is potentially a large degree of mistargeting in the DSH payment program means that we’re not just leaving money on the table, but we’re leaving potentially patient-improving and quality-improving money on the table. This is money that could go to tremendous, good use for a group of patients that is disproportionately at risk for bad outcomes in the first place,” said Chatterjee in an LDI interview.

“We know that when Medicaid DSH payments get to the hospitals that they’re designed to reach, that funding is associated with better inpatient outcomes. Things like inpatient mortality from heart attack and neonatal mortality improve. We’re not just talking about money in the health care system in an abstract sense. What we do know is that when DSH money is targeted effectively, patients benefit in really meaningful ways that are salient to their hospital care.”

Some of the ways in which the mistargeting of DSH payments manifests can fall heavily on vulnerable communities of patients.

Structural Racism

“Some of our prior work shows that the way we currently allocate Medicaid DSH payments might be subject to structural racism biases,” said Chatterjee. She explained that a county-level analysis has shown that disproportionately large Black populations have much higher health needs but do not receive DSH payments commensurate with those higher levels of need.” In fact, she said, they receive payments that are quite a bit lower.

Another finding was that about 32% of hospitals that receive DSH funds actually lack the levels of uncompensated care required to make them technically ineligible to receive DSH funds.

“This suggests that there’s a real opportunity for us to change the way that we think about targeting these DSH payments so that they reach the counties and communities that could benefit from them most,” said Chatterjee. “Revisiting the design and implementation of the DSH program thus represents a key policy lever for improving health equity in the US by improving support for the hospitals and health systems that serve low-income communities.”

However, she pointed out, “The allocation of Medicaid payments across the country operates under a pretty complicated political economy and the way payments were allocated in the 1990s is largely how they are still being allocated today. This, despite the remarkable changes that have occurred in insurance [coverage] and the distribution of poverty in the U.S. since then. Part of the challenge is that it’s very hard to take money away from hospitals that were traditionally receiving it, and policymakers and legislators are often very protective of the payments that they have historically received. Changing that has proven to be a pretty formidable challenge.”

Recommendations

Chatterjee’s recommendations for realigning DSH payments with the original intention of the program were these:

• Remedy the current misallocations of DSH funding. State could better target existing DSH funds to support hospitals that provide relatively high levels of uncompensated care.
• Define safety-net needs differently. DSH payment formulas could be partially tied to the provision of essential community services as defined by the Medicaid and Children’s Health Insurance Program (CHIP) Payment and Access Commission to support the health needs of low-income, uninsured populations, including obstetric, inpatient psychiatric, and trauma care.
• Reduce Redundancy. States and the federal government could work together to address redundancy among the so-called supplemental payment programs—which, in addition to the Medicaid DSH program, includes the Medicare DSH program, among others—that all share the goal of supporting uncompensated hospital care but do so through different mechanisms.
• Congress could fundamentally reform the DSH program to reflect the fact that the majority of health care is now delivered in the outpatient, rather than inpatient, setting. Unused or mistargeted DSH funds could be reallocated as a subsidy to organizations and clinicians providing outpatient services to incentivize primary care and specialist physician participation in the Medicaid program.

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