• Issue Brief
  • January 1, 2014

Medicaid DSH Payments Are Critical to Children's Hospitals

Medicaid Disproportionate Share Hospital (DSH) payments are critical to children’s hospitals and their ability to provide health care to all children, regardless of income. Congress created the Medicaid DSH program to provide financial help to hospitals that treat a large number of Medicaid and uninsured patients. The program plays an important role for children’s hospitals in addressing Medicaid underpayment, and will continue to do so after the full implementation of the Affordable Care Act (ACA). 

Though the number of uninsured children has declined, the number of children covered by Medicaid has grown over the past several years, partly due to the economic downturn. Medicaid is the single largest payer for children’s hospitals, and inadequate Medicaid reimbursement poses serious ongoing financial challenges. The significant reductions to DSH payments in the ACA will have a substantial impact on children’s hospitals’ financial viability and could threaten their ability to provide care for children.  

Children’s hospitals are major Medicaid providers.
  • Medicaid accounts for the majority of patients in a children’s hospital (52 percent of discharges).
  • Although they account for less than 5 percent of hospitals, children’s hospitals provide 47 percent of the hospital care required by children covered by Medicaid.
Medicaid DSH payments are critical to the viability of children’s hospitals.
  • Medicaid DSH payments supplement inadequate Medicaid reimbursement to children’s hospitals and enable them to sustain their full range of specialized pediatric care services and pediatric training programs that benefit all patients. 
  • Medicaid (including DSH payments) reimburses children’s hospitals an average of only 79 percent of the costs of providing care.
  • Medicaid reimbursement to children’s hospitals would fall to an average of 69 percent of costs without needed DSH payments.
Children’s hospitals are disproportionately affected by Medicaid DSH cuts.
  • The ACA initially cut Medicaid DSH funding by $18 billion between FY 2014 and FY 2020. While Congress later delayed the start of the DSH cuts by two years, a total of $12 billion in additional cuts have been enacted to extend reductions in DSH funding through FY 2023.
  • The cuts to Medicaid DSH were premised on the assumption that the need for the payments in the future would decline because the uninsured population would decrease after implementation of the ACA. However, since most children in the U.S. already have public or private health coverage, lowering the number of uninsured does not reduce children’s hospitals’ need for Medicaid DSH payments because the shortfalls resulting from inadequate Medicaid reimbursement persist.  
  • The Medicaid DSH cuts do not take into account the fact that Medicaid reimbursement to children’s hospitals will continue to be inadequate, and DSH payments are needed until each state’s Medicaid program payments cover the cost of care.
Association Contact: Shannon Lovejoy, (202) 753-5385