MEDICAID

More Transparency of 

and Accountability for 

Supplemental 

Payments Are Needed

Report to the Committee on Finance, 

U.S. Senate

November 2012

GAO-13-48

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United States Government Accountability Office

GAO
United States Government Accountability Office

Highlights of GAO-13-48, a report to the 

Committee on Finance, U.S. Senate

November 2012

MEDICAID

More Transparency of and Accountability for 

Supplemental Payments Are Needed

Why GAO Did This Study

In 2011, states reported making 

$43 billion in Medicaid supplemental 

payments—payments above regular 

payments for Medicaid services—to 

certain providers, mainly hospitals. The 

federal government shares in the cost 

of these payments. By law, states 

make certain supplemental payments, 

known as DSH payments, for 

uncompensated care costs 

experienced by hospitals serving large 

numbers of low-income and Medicaid 

patients. States also make other 

supplemental payments—referred to 

here as non-DSH payments—to 

hospitals and other providers who, for 

example, serve high-cost Medicaid 

beneficiaries. Past GAO reports have 

found gaps in federal oversight of 

these high-risk payments: a lack of 

information on the providers receiving 

them, inaccurate payment calculation 

methods, and a lack of assurances the 

payments were used for Medicaid 

purposes. CMS has required states to 

submit annual audits and reports on 

DSH payments since 2010. GAO was 

asked to review federal oversight of 

supplemental payments and examined 

(1) how information in DSH audits and 

reports facilitates CMS’s oversight of 

DSH payments, and (2) the extent to 

which similar information exists for 

non-DSH payments. GAO analyzed 

2010 DSH audits and reports and 

interviewed CMS officials.

What GAO Recommends

Congress should consider requiring the 

Administrator of CMS to improve 

transparency of and accountability for 

non-DSH supplemental payments by 

requiring facility-specific payment 

reporting and annual audits, among 

other steps.

What GAO Found

The recently implemented annual audits and reports for states’ disproportionate 

share hospital (DSH) payments could improve oversight by the Centers for 

Medicare & Medicaid Services (CMS)—the federal agency that oversees 

Medicaid—by illuminating needed changes. States are required to submit audits 

and reports to CMS as a condition for receiving federal funds for their DSH 

payments. The first set of DSH audits was submitted by states in 2010 and 

covers states’ 2007 DSH payments. The audits give CMS information on how 

well states are complying with six DSH requirements, including whether 

payments are limited to hospitals’ uncompensated care costs and are accurately 

calculated. Under a transition period, CMS will not act on audit findings until the 

2014 audits are complete; however, findings from GAO’s analysis of the 2010 

DSH audits show that 44 states will likely need to make changes to their DSH 

payments to come into compliance. For example, 

• 41 states made DSH payments to 717 hospitals that exceeded the individual 

hospitals’ uncompensated care costs as calculated by the auditors, and 

• 9 states did not accurately calculate the uncompensated care costs of 

206 hospitals in those states for purposes of making DSH payments. 

The DSH reports can also improve oversight because they provide hospitalspecific information that CMS can use to better align capped federal DSH funds 

with hospitals’ uncompensated care costs. Federal law reduces national DSH 

funding beginning in fiscal year 2014, and requires CMS to implement a method 

for corresponding reductions in each state’s DSH funding. GAO analysis of DSH 

reports shows that some states’ DSH payments are not proportionally targeted to 

hospitals with the highest uncompensated care. 

CMS lacks similar information for overseeing non-DSH payments; available 

information suggests that better reporting and audits of non-DSH payments could 

improve CMS’s ability to oversee them. Reporting of non-DSH payments that 

states make to individual hospitals and other providers relative to the providers’ 

Medicaid costs could improve the transparency of these payments. Audits could 

improve accountability by providing information on how non-DSH payments are 

calculated and the extent to which payments to individual providers are 

consistent with the Medicaid payment principles of economy and efficiency. GAO 

analysis of the limited hospital-specific information available found that 39 states 

made non-DSH payments to 505 DSH hospitals that, along with their regular 

Medicaid payments, exceeded those hospitals’ total costs of providing Medicaid 

care by a total of about $2.7 billion. Although regular and non-DSH Medicaid 

payments are not required to be limited to a provider’s costs of delivering 

Medicaid services, payments that greatly exceed these costs raise questions, for 

example, as to whether payments are being used for Medicaid. As of November

2012, CMS has no plans to require states to report provider-specific non-DSH 

payments, clarify permissible methods for calculating non-DSH payments, and 

require annual independent audits of states’ non-DSH payments, because in its 

view legislation was crucial to implementing similar DSH requirements.

In reviewing a draft of this report, the Department of Health and Human Services 

agreed with GAO about the need to improve reporting and oversight of non-DSH 

payments and noted some efforts under way to do so.

View GAO-13-48. For more information, 

contact Katherine Iritani at (202) 512-7114 or 

iritanik@gao.gov.
Page i GAO-13-48 Oversight of Medicaid Supplemental Payments

Letter 1 

Background 7

DSH Audits and Reports Provide Information That Can Improve 

Federal Oversight by Illuminating Needed Changes to DSH 

Payments 12

Information on Non-DSH Payments Does Not Exist to the Same 

Extent as for DSH Payments, and Available Reports Suggest 

That Such Information Could Enhance Oversight 21

Conclusions 30

Matter for Congressional Consideration 31

Agency Comments 31

Appendix I Scope and Methodology 33

Appendix II Extent of Compliance with DSH Audit Requirements in 

2010 DSH Audits 38

Appendix III Overview of the 17 Data Elements on DSH Reports 45

Appendix IV Percentage of DSH Payments and Uncompensated Care for 

DSH Hospitals in 2010 DSH Reports 48

Appendix V DSH Hospitals’ Non-DSH Payments and Medicaid 

Uncompensated Care Costs in 2010 DSH Reports 51

Appendix VI DSH Payments and Uncompensated Care Costs for Selected 

DSH Hospitals in 2010 DSH Reports 54

Contents
Page ii GAO-13-48 Oversight of Medicaid Supplemental Payments

Appendix VII DSH Hospitals with Medicaid Payments in Excess of Medicaid 

Costs in 2010 DSH Reports 61

Appendix VIII Comments from the Department of Health and Human Services 64

Appendix IX GAO Contact and Staff Acknowledgments 66

Related GAO Products 67

Tables

Table 1: Disproportionate Share Hospital (DSH) Audit 

Requirements Established by 2008 Final Rule 13

Table 2: Summary of the 2010 Disproportionate Share Hospital 

(DSH) Audit Findings for 49 States, by DSH Audit 

Requirement 17

Table 3: Information That States Are Required to Provide to the 

Centers for Medicare & Medicaid Services on Medicaid 

Disproportionate Share Hospital (DSH) and Non-DSH 

Supplemental Payments Made to Hospitals, by Source of 

Information 22

Table 4: Extent of Compliance with Federal DSH Audit 

Requirements, by State, Audit Requirement, and Number 

of Hospitals as Reported in 2010 Disproportionate Share 

Hospital (DSH) Audits (part 1) 40

Table 5: Extent of Compliance with Federal DSH Audit 

Requirements, by State, Audit Requirement, and Number 

of Hospitals as Reported in 2010 Disproportionate Share 

Hospital (DSH) Audits (part 2) 43

Table 6: Data Elements on Disproportionate Share Hospital (DSH) 

Reports 46

Table 7: Number of Hospitals, Percentage of Disproportionate 

Share Hospital (DSH) Payments, and Percentage of 

Uncompensated Care for the 10 Percent of DSH Hospitals 

Receiving the Largest DSH Payments and the 90 Percent 

Receiving the Smallest DSH Payments, by State 49
Page iii GAO-13-48 Oversight of Medicaid Supplemental Payments

Table 8: Number of Hospitals, Percentage of Non-Disproportionate 

Share Hospital (DSH) Supplemental Payments, and 

Percentage of Medicaid Uncompensated Care Costs for 

the 10 Percent of DSH Hospitals Receiving the Largest 

Non-DSH Payments and the 90 Percent of DSH Hospitals 

Receiving the Smallest Non-DSH Supplemental Payments, 

by State 52

Table 9: Medicaid and Uninsured Patient Payments and Costs for 

Disproportionate Share Hospital (DSH) Hospitals That 

Had No Uncompensated Care Costs and Received a DSH 

Payment, by State 57

Table 10: Medicaid and Uninsured Patient Payments and Costs for 

Disproportionate Share Hospital (DSH) Hospitals That 

Had Uncompensated Care Costs and Received a DSH 

Payment in Excess of These Costs, by State 60

Table 11: Number and Percentage of Disproportionate Share 

Hospital (DSH) Hospitals That Received Non-DSH 

Supplemental and Regular Medicaid Payments in Excess 

of Medicaid Costs and Amount by Which Payments 

Exceeded Costs, by State 62

Figures

Figure 1: Overview of How States Make Non-Disproportionate 

Share Hospital (DSH) Supplemental Payments in Addition 

to Regular Medicaid Payments under Medicaid’s Upper 

Payment Limit (UPL) 9

Figure 2: Share of Disproportionate Share Hospital (DSH) 

Payments Received and Share of Uncompensated Care 

Provided by the 10 Percent of DSH Hospitals Receiving 

the Largest DSH Payments in 2007, Ranked by Difference 

between Share of DSH Payments and Share of 

Uncompensated Care 20

Figure 3: Number and Percentage of Disproportionate Share 

Hospital (DSH) Hospitals That Received Regular Medicaid 

and Non-DSH Supplemental Payments in Excess of 

Medicaid Costs, and Amounts by Which Payments

Exceeded Costs, by State 28

Figure 4: Medicaid and Uninsured Patient Payments and Costs for 

Disproportionate Share Hospital (DSH) Hospitals That 

Did Not Have Uncompensated Care Costs 56
Page iv GAO-13-48 Oversight of Medicaid Supplemental Payments

Figure 5: Medicaid and Uninsured Patient Payments and Costs for 

Disproportionate Share Hospital (DSH) Hospitals That 

Had Uncompensated Care Costs 59

Abbreviations

CMS Centers for Medicare & Medicaid Services

CPA Certified Public Accountant

DSH Disproportionate Share Hospital

FMAP federal medical assistance percentage

HHS Department of Health and Human Services

MACPAC Medicaid and CHIP Payment and Access Commission

OIG Office of Inspector General

PPACA Patient Protection and Affordable Care Act

UPL Upper Payment Limit

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Page 1 GAO-13-48 Oversight of Medicaid Supplemental Payments

United States Government Accountability Office

Washington, DC 20548

November 26, 2012

The Honorable Max Baucus

Chairman

The Honorable Orrin Hatch

Ranking Member

Committee on Finance

United States Senate

In 2011, Medicaid—the joint federal-state program that finances health 

care for certain low-income individuals—cost an estimated $410 billion.1

States pay qualified health care providers for covered services provided 

to Medicaid beneficiaries and obtain federal matching funds for the 

federal share of these payments.2 In addition to these regular payments, 

which are generally based on claims submitted by the providers for 

services rendered, states also make and obtain federal matching funds 

for supplemental payments to certain providers—particularly hospitals—to 

help offset remaining costs of care for Medicaid patients,3

 

1

Medicaid provided health coverage for an estimated 55 million low-income individuals, 

including children, families, and aged or disabled individuals in 2011.

as well as, in 

some cases, the costs they incur to treat uninsured patients. Unlike 

regular Medicaid payments, supplemental payments typically are not 

made on the basis of claims submitted for services rendered. Rather, they 

generally consist of large lump sum payments made on a monthly, 

quarterly, or yearly basis. Supplemental payments are a significant and 

growing component of Medicaid spending. Some states have made 

relatively large supplemental payments to relatively small numbers of 

providers, and the total amount of supplemental payments has 

The 2011 cost figure represents combined federal and state Medicaid expenditures for 

provider services in fiscal year 2011 and does not include expenditures for administration. 

Centers for Medicare & Medicaid Services’ Office of the Actuary, 2011 Actuarial Report on 

the Financing Outlook for Medicaid (Washington, D.C.: March 2012). 

2

The federal government matches state Medicaid expenditures for services according to a 

state’s federal medical assistance percentage (FMAP). The FMAP is based on a statutory 

formula under which the federal share of a state’s Medicaid expenditures for services may 

range from 50 to 83 percent. States with lower per capita income receive a higher FMAP. 

42 U.S.C. §§ 1396b(a)(1), 1396d(b).

3

States’ regular Medicaid payments are not required to fully cover the costs of providing 

Medicaid services. 

 
 

Page 2 GAO-13-48 Oversight of Medicaid Supplemental Payments

increased.4 In fiscal year 2011, states reported spending at least 

$43 billion on supplemental payments, up from $32 billion in fiscal year 

2010 and at least $23 billion in fiscal year 2006.5 These amounts were 

likely understated, because reporting of supplemental payments was 

incomplete. We and others have raised concerns about the need for 

improved transparency regarding the size of the payments and who 

receives them, as well as the need for improved accountability regarding 

how the funds are related to Medicaid services.6 Since 2003, we have 

designated Medicaid a high-risk program due to concern about its size, 

growth, and fiscal oversight, including federal oversight of supplemental 

payments.7

The Centers for Medicare & Medicaid Services (CMS), an agency within 

the Department of Health and Human Services (HHS), is responsible for 

overseeing state Medicaid programs at the federal level. These 

responsibilities include reviewing and approving state Medicaid plans, 

which include states’ methodologies for determining provider payments. 

CMS responsibilities also include ensuring that state Medicaid payments 

are consistent with federal requirements, including the requirements that 

payments to providers must be consistent with efficiency, economy, and 

quality of care and must be sufficient to enlist enough providers that care 

and services are available at least to the extent that they are available to 

the general population in the area.8

 

4

GAO, Medicaid: CMS Needs More Information on the Billions of Dollars Spent on 

Supplemental Payments, 

To fulfill these responsibilities, CMS 

GAO-08-614 (Washington, D.C.: May 2008).

5

GAO, Medicaid: States Reported Billions More in Supplemental Payments in Recent 

Years, GAO-12-694 (Washington, D.C.: July 2012).

6

A list of related GAO products can be found at the end of this report. Also see, for 

example, HHS, Office of the Inspector General, Audit of Oregon’s Medicaid Upper 

Payment Limits for Non-State Government Nursing Facilities for State Fiscal Years 2002 

and 2003, A-09-03-00055 (Washington, D.C.: 2005); HHS, Office of the Inspector 

General, Adequacy of Tennessee’s Medicaid Payments to Nashville Metropolitan 

Bordeaux Hospital, Long-Term-Care Unit, A-04-03-03023 (Washington, D.C.: 2005); and 

HHS, Office of the Inspector General, Adequacy of Washington State’s Medicaid 

Payments to Newport Community Hospital, Long-Term-Care Unit, A-10-04-00001 

(Washington, D.C.: 2005).

7

GAO, High-Risk Series: An Update, GAO-11-278 (Washington, D.C.: February 2011).

8

42 U.S.C § 1396a(a)(30)(A).
 

Page 3 GAO-13-48 Oversight of Medicaid Supplemental Payments

needs to have relevant, reliable, and timely information available for 

management decision making and external reporting purposes.9

A large component of Medicaid supplemental payments is 

disproportionate share hospital (DSH) payments. Under federal Medicaid 

law, states are required to make DSH payments to certain hospitals. 

These payments are designed to help offset these hospitals’ 

uncompensated care costs for serving Medicaid and uninsured lowincome individuals.10 Congress and CMS have taken several actions over 

the past two decades—including setting limits, or caps, on DSH spending 

at the state level—to help ensure the transparency and accountability of 

these payments and enable more-informed oversight. In addition to 

establishing annual state DSH allotments, which limit the amount of 

federal matching funds each state is permitted to receive for DSH 

payments, federal law also limits the amount of DSH payments states 

may make to an individual hospital to an amount equal to or less than the 

hospital’s annual uncompensated care costs.11 In 2003, Congress 

mandated improved accountability for DSH payments under the Medicare 

Prescription Drug, Improvement, and Modernization Act of 2003, by 

providing that the Secretary of Health and Human Services require states 

to submit annual independent certified audits and annual reports on their 

DSH payments.12

 

9

Standards for Internal Control in the Federal Government states that agencies are 

responsible for determining through monitoring that relevant, reliable, and timely 

information is available for management decision making and external reporting purposes. 

In addition, agencies are responsible for continually examining and improving internal 

controls to provide reasonable assurance that the objectives of the agency, such as 

compliance with applicable laws and regulations, are being achieved. GAO, Standards for 

Internal Control in the Federal Government,

In 2008, CMS issued a final rule to implement the 2003 

GAO/AIMD-00-21.3.1 (Washington, D.C.: 

November 1999). 

10See 42 U.S.C. §§ 1396a(13)(A), 1396r-4. Uncompensated care costs are the costs 

incurred in providing services during the year to Medicaid and uninsured patients minus 

any payments made to the hospital for Medicaid and uninsured patients for those 

services. Congress established DSH payments to hospitals in 1981, when changes were 

made to the methods states could use to determine Medicaid hospital payment rates, in 

response to concerns about the effects those changes could have on hospitals serving 

larger numbers of Medicaid and uninsured low-income individuals.

1142 U.S.C. § 1396r-4(g)(1). 

12Pub. L. No. 108-173, § 1001(d), 117 Stat. 2066, 2430-2431 (2003) (adding section 

1923(j) to the Social Security Act) (codified, as amended, at 42 U.S.C. § 1395r-4(j)). 
 

Page 4 GAO-13-48 Oversight of Medicaid Supplemental Payments

DSH audit and report requirement.13

In addition to DSH payments, many states also make another type of 

Medicaid supplemental payment—referred to here as non-DSH 

supplemental payments—to providers. Unlike DSH payments, states are 

not required under federal law to make non-DSH payments,

The 2008 final rule laid out key audit 

and reporting requirements, including the requirement that states include 

in their annual DSH reports facility-specific information on the costs of 

serving Medicaid and uninsured patients and payments received from or 

on behalf of these patients. The first sets of DSH audits and reports, 

covering payments made in 2005 through 2007, were submitted to CMS 

in December 2010.

14 and nonDSH payments do not have a specified statutory or regulatory purpose.15

Non-DSH payments are made not only to hospitals but also to other 

providers, such as nursing homes and physician groups that, for example, 

serve high-cost Medicaid beneficiaries. Since the 1980s, some states 

have made non-DSH payments to certain hospitals and providers if the 

state’s regular Medicaid payments did not reach the upper payment limit 

(UPL) for federal matching.16 The UPL is based on what Medicare—the 

federal health program that covers individuals aged 65 and over, 

individuals with end-stage renal disease, and certain disabled 

individuals—would pay for comparable services.17

 

13Medicaid Program; Disproportionate Share Hospital Payments, 73 Fed. Reg. 77904 

(Dec. 19, 2008) (codified at 42 C.F.R. Parts 447 and 455); Medicaid Program; 

Disproportionate Share Hospital Payments; Correcting Amendment, 74 Fed. Reg. 18656 

(Apr. 24, 2009). CMS subsequently issued a notice of proposed rulemaking to revise 

certain provisions of this rule. Medicaid Program; Disproportionate Share Hospital 

Payments—Uninsured Definition, 77 Fed. Reg. 2500 (Jan. 18, 2012).

The UPL is the upper 

14In this report, we use the terms non-DSH payments and non-DSH supplemental 

payments interchangeably. 

15We found in our 2008 study of five states that some states indicated that one purpose 

may be similar to that for DSH payments in that non-DSH payments are made to hospitals 

serving a large number of Medicaid patients. See GAO-08-614. 

16Sometimes non-DSH payments are referred to as UPL payments.

17The UPL is not a facility-specific limit, but is instead applied on an aggregate basis to 

three categories of providers: local (nonstate) government-owned or local (nonstate) 

government-operated facilities, state-government-owned or state-government-operated 

facilities, and privately owned and operated facilities. Separate UPLs exist for inpatient 

services provided by hospitals, nursing facilities, and intermediate care facilities for 

individuals with intellectual disabilities, and outpatient services provided by hospitals and 

clinics. See 42 C.F.R. §§ 447.272, 447.321 (2011).
 

Page 5 GAO-13-48 Oversight of Medicaid Supplemental Payments

bound on what the federal government will pay as its share of the 

Medicaid payments for different classes of covered services, and it often 

exceeds regular Medicaid payments for services. On the basis of the gap 

between the UPL and regular Medicaid payments, states can make nonDSH supplemental payments to selected providers for different classes of 

services.18

In recent years, states have reported increasing amounts of non-DSH 

payments.

These non-DSH payments, which are in addition to regular 

Medicaid payments made to providers, but within the UPL, are not subject 

to the same type of overall state spending limits or facility-specific limits 

that DSH payments are. In particular, non-DSH supplemental payments 

are not limited to an individual provider’s cost of providing Medicaid 

services. 

19 In 2012, CMS’s Office of the Actuary reported that recent 

increases in Medicaid spending for hospital services were due in part to 

large non-DSH payments to hospitals in 2010.20

You asked for information about federal oversight of supplemental 

payments, including whether recent audits of DSH payments are 

facilitating oversight of these payments. For this report, we determined 

(1) how the information collected from DSH audits and reports can 

facilitate CMS’s oversight of DSH payments and (2) the extent to which 

similar information exists to facilitate CMS’s oversight of non-DSH 

supplemental payments.

In contrast to recent 

years, when DSH payments exceeded non-DSH payments, in fiscal year 

2011 non-DSH payments exceeded DSH payments, with non-DSH 

payments totaling nearly $26 billion, compared to over $17 billion for DSH 

payments.

 

18DSH payments are not included in calculating the gap between the UPL and regular 

Medicaid payments. 

19At the same time, we have reported that many states have reduced regular Medicaid 

payment rates in response to budgetary pressures. GAO, Increased Medicaid Funds 

Aided Enrollment Growth, and Most States Reported Taking Steps to Sustain Their 

Programs, GAO-11-58 (Washington, D.C.: Oct. 8, 2010).

20Researchers with CMS’s Office of the Actuary compared health care spending growth 

for calendar years 2009 and 2010. They found that overall Medicaid spending growth 

slowed from 8.9 percent in 2009 to 7.2 percent in 2010, whereas Medicaid spending 

increases for hospital services grew from 10.4 percent in 2009 to 11.2 percent in 2010. 

Anne B. Martin et al., “Growth in U.S. Health Spending Remained Slow in 2010; Health 

Share of Gross Domestic Product Was Unchanged from 2009,” Health Affairs, vol. 31, 

no. 1 (2012).
 

Page 6 GAO-13-48 Oversight of Medicaid Supplemental Payments

To determine how the information collected from DSH audits and reports 

can facilitate CMS’s oversight of DSH payments, we reviewed relevant 

federal laws, regulations, and guidance and analyzed states’ 2010 DSH 

audits and reports for payments made in 2007, the most recent year 

available at the time of our review.21 A total of 49 states submitted DSH 

audits and reports covering about 3,000 DSH hospitals.22

To determine the extent to which information similar to that which exists 

for DSH payments also exists to facilitate CMS’s oversight of non-DSH 

supplemental payments, we reviewed relevant federal laws, regulations, 

and guidance; analyzed data on non-DSH supplemental payments and 

Medicaid payments and costs that were reported for DSH hospitals in 

We analyzed 

auditors’ assessments of states’ compliance with key audit requirements 

and analyzed hospitals’ DSH payments and uncompensated care costs 

from the DSH reports to examine the extent to which state DSH payments 

are aligned with hospitals’ uncompensated care costs. Our analysis of the 

DSH audits did not evaluate the quality of the audits or the process that 

the independent auditors followed to produce the DSH audits. To ensure 

that the data submitted by the states were sufficiently reliable for our 

analyses, we reviewed auditors’ findings in each state’s DSH audit, 

reviewed DSH reports for incomplete and erroneous entries, and 

discussed these findings with CMS officials. We determined that the DSH 

audits and reports were sufficiently reliable for the purposes of this report, 

and we accounted for any limitations in these data during our analyses. 

We also conducted interviews with CMS officials.

 

21In this report, we use the term state to refer to the 50 states and the District of Columbia. 

We do not include Puerto Rico or four U.S. territories—American Samoa, Guam, the 

Northern Mariana Islands, and the U.S. Virgin Islands.

22Massachusetts and Tennessee did not make DSH payments in 2007 and did not submit 

DSH audits or reports. Some states operate HHS-approved Section 1115 Medicaid 

demonstrations under which the state does not make DSH payments directly to hospitals. 

For example, Tennessee incorporated DSH funding into payments to managed care 

organizations, and all of Massachusetts’s DSH funds were used to support a special fund 

for safety-net health care providers.

For the purpose of this report, we refer to hospitals that receive DSH payments as DSH 

hospitals. 
 

Page 7 GAO-13-48 Oversight of Medicaid Supplemental Payments

states’ 2010 DSH reports; and conducted interviews with CMS officials.23

We conducted this performance audit from December 2011 through 

November 2012 in accordance with generally accepted government 

auditing standards. Those standards require that we plan and perform the 

audit to obtain sufficient, appropriate evidence to provide a reasonable 

basis for our findings and conclusions based on our audit objectives. We 

believe that the evidence obtained provides a reasonable basis for our 

findings and conclusions based on our audit objectives.

More details on our methodology can be found in appendix I.

The two types of supplemental payments—DSH and non-DSH—had very 

different origins and have different requirements. Federal law requires 

states to make DSH payments to certain eligible hospitals.24 States are 

required to report these payments separately from their regular Medicaid 

payments in their quarterly expenditure reports, which they submit to 

CMS to obtain federal matching funds. The separate reporting for DSH 

payments has allowed CMS to monitor these payments. In the early 

1990s, following a period of rapid growth in DSH payments and reports of 

states establishing complex financing arrangements involving these 

payments that, in effect, resulted in the diversion and use of federal funds 

for non-Medicaid purposes, Congress set the limits, or caps, on DSH 

spending at the state and facility levels. In contrast to DSH payments, the 

amount of non-DSH payments a state may make has no firm dollar limit. 

Instead, the UPL, under which non-DSH payments are made, fluctuates 

because it is based on the amount of Medicaid services provided, a 

state’s regular Medicaid payment rate for the services, and the rates that 

Medicare would pay for comparable services,25

 

23DSH hospitals include any hospital that has a Medicaid inpatient utilization rate of at 

least 1 percent, and, with the exception of children’s hospitals and certain hospitals that do 

not offer nonemergency obstetric services, at least two obstetricians who have staff 

privileges at the hospital and have agreed to provide obstetric services. 42 U.S.C. 

§§ 1396r-4(d).

factors that may fluctuate 

24Federal law requires states to make DSH payments to eligible hospitals that have a 

Medicaid inpatient utilization rate of at least one standard deviation above the mean rate 

for hospitals receiving Medicaid payments in the state and to eligible hospitals that have a 

low-income utilization rate that exceeds 25 percent. 42 U.S.C. § 1396r-4(b). 

25See 42 C.F.R. §§ 447.272, 447.321 (2011). Medicare payment rates are typically higher 

than state Medicaid payment rates.

Background 
 

Page 8 GAO-13-48 Oversight of Medicaid Supplemental Payments

over time. In this way, the UPL does not operate as a firm dollar limit on 

non-DSH supplemental payments in the same way state DSH allotments 

serve to cap DSH payments. States began making non-DSH payments to 

target additional payments to certain providers. Under federal Medicaid 

regulations, states may make such payments, with approval from CMS 

through the state plan approval process, as long as regular and non-DSH 

supplemental payments to a class of providers do not exceed the 

respective UPL.26 The UPL is not applied to individual providers; instead it 

is applied to all providers within specified ownership classes. As a result, 

states have discretion in how they distribute non-DSH supplemental 

payments to individual providers. We and the HHS Office of Inspector 

General (OIG) have reported that some states concentrated these 

payments to a small number of providers and there was no assurance 

that they were used for Medicaid purposes.27

 

26Separate UPLs exist for inpatient services provided by hospitals, nursing facilities, and 

intermediate care facilities for individuals with intellectual disabilities, and outpatient 

services provided by hospitals and clinics. These UPLs are applied on an aggregate basis 

to three categories of providers: local (nonstate) government-owned or local (nonstate) 

government-operated facilities, state-government-owned or state-government-operated 

facilities, and privately owned and operated facilities. See 42 C.F.R. §§ 447.272, 447.321 

(2011). Although there are several UPLs, in this report we use the term UPL to 

encompass all UPLs.

(See fig. 1 for a description 

of how states make non-DSH supplemental payments in addition to 

regular Medicaid payments under the Medicaid UPL provisions.)

27GAO, Medicaid: Improved Federal Oversight of State Financing Schemes Is Needed, 

GAO-04-228 (Washington, D.C.: Feb. 2004), and HHS, Office of the Inspector General, 

A-09-03-00055, A-04-03-03023, and A-10-04-00001.
 

Page 9 GAO-13-48 Oversight of Medicaid Supplemental Payments

Figure 1: Overview of How States Make Non-Disproportionate Share Hospital (DSH) 

Supplemental Payments in Addition to Regular Medicaid Payments under 

Medicaid’s Upper Payment Limit (UPL)

Notes: The UPL applies to regular Medicaid payments and non-DSH supplemental payments and

does not include DSH payments. DSH payments are made for services provided to Medicaid and 

uninsured patients and have separate payment limits.

We have previously reported concerns about a lack of reliable information 

regarding DSH payments and concerns about the accuracy of states’ 

calculations of these payments. In May 2008, we reported that CMS was 

not collecting the facility-specific information needed to oversee the 

integrity of the DSH payments.28

 

28

We recommended that CMS expedite 

issuance of a final rule implementing the 2003 statute requiring states to 

complete annual independent audits of DSH payments and annual state 

reports on DSH payments made to individual hospitals. As mentioned 

above, CMS issued this rule in December 2008. In our November 2009

report, we found DSH payments that were not based on accurate 

GAO-08-614. 
 

Page 10 GAO-13-48 Oversight of Medicaid Supplemental Payments

estimates of individual hospitals’ DSH payment limits.29 In particular, two 

of the four states we reviewed did not adhere to the federal requirement 

that states include all Medicaid payments, including non-DSH 

supplemental payments, when estimating hospitals’ DSH payment 

limits.30 In these cases, payments were being made to reimburse 

hospitals for uncompensated care costs without considering other 

Medicaid payments the providers had received, resulting in 

overpayments. At that time, CMS indicated that its 2008 final rule would 

better ensure that states account for all Medicaid payments. The 2008 

final rule included instructions for states to use to ensure that their 

methodology for calculating DSH payments was consistent with federal 

law. As mentioned earlier, the first sets of DSH audits and reports, 

covering payments made in 2005 through 2007, were submitted to CMS 

in December 2010. CMS gave states a transition period during which the 

agency would not take action against states on the basis of findings of 

noncompliance with federal DSH requirements identified in the audits and 

reports. Beginning in 2014, after the transition period has ended,31

Over the past decade, we have also raised concerns related to the 

oversight of non-DSH payments. In 2004, we reported a need for morecomplete CMS review of non-DSH supplemental payment arrangements 

to ensure that payments were for Medicaid purposes.

CMS 

may use audit findings to recover federal funds for payments that did not 

comply with federal DSH audit requirements; however, states will have 

the option to seek approval from CMS to redistribute the federal funding 

in question to other hospitals that are qualified to receive DSH payments.

32

 

29GAO, Medicaid: Ongoing Federal Oversight of Payments to Offset Uncompensated 

Hospital Care Costs Is Warranted, 

Although CMS 

increased the scrutiny of states’ requests for approval of non-DSH 

supplemental payments through the state plan amendment approval 

process, in 2008 we reported that not all supplemental payments had 

GAO-10-69 (Washington, D.C.: Nov. 20, 2009).

30All Medicaid payments, including non-DSH supplemental payments, count against a 

hospital’s DSH cap, reducing the total DSH payments a hospital may receive. See 

42 U.S.C. § 1396r-4(g). 

31Audits for payments made in 2011 will be completed and submitted by December 31, 

2014. The delay in the submission of audits and reports allows for any lag in the 

availability of actual hospital cost and payment data. 

32GAO-04-228. 
 

Page 11 GAO-13-48 Oversight of Medicaid Supplemental Payments

been reviewed through this process.33 We also have reported on a need 

for guidance to states regarding appropriately estimating the UPL, and a 

need for improved transparency for non-DSH payments, which are often 

large and made to small numbers of providers, through facility-specific 

reporting of these payments. For example, we reported in February 2004 

and May 2008 that CMS lacked comprehensive information on how states 

were allocating non-DSH payments to providers.34 We also found in 2004 

that CMS did not issue guidance to states on the methods used to 

calculate the amounts of their non-DSH payments. In a sample of six 

states, we found widely varying and potentially inaccurate methods for 

calculating the UPL, which is the basis for the amount of non-DSH 

supplemental payments states may make. Inaccurate methods could 

result in overestimates of the UPL and excessive claims for federal 

matching funds. To address these concerns, we recommended that CMS 

require facility-specific reporting of non-DSH payments and establish 

uniform guidance on the acceptable methods for calculating the amount 

of non-DSH payments. As of November 2012, facility-specific reporting 

requirements had not been established, and uniform guidance had not 

been issued.35

 

33GAO-08-614. 

34GAO-04-228 and GAO-08-614. 

35In conjunction with a final rule CMS issued in 2007 that created facility-specific limits on 

non-DSH payments for governmental providers, the agency established methods and data 

sources for states to use to calculate these payment limits; however, a federal district 

court vacated the rule in 2008, and CMS formally rescinded the rule in 2010. See 

Alameda County Medical Center, et al. v. Leavitt, et al., no. 1:08-00422 (D.D.C. filed 

Mar. 11, 2008).
 

Page 12 GAO-13-48 Oversight of Medicaid Supplemental Payments

The DSH audits can help improve oversight of states’ DSH payments by 

providing CMS with information on state compliance with federal DSH 

requirements, and information from recent audits shows that most states 

may need to take corrective actions by 2014. The 2010 DSH reports 

provide CMS with information that can be used, for example, to better 

align DSH payments with hospitals’ uncompensated care costs as 

required by recent federal law.

The annual independent audits of state DSH payments provide 

information that CMS can use to improve its oversight of the extent of 

states’ compliance with six key DSH requirements (see table 1 for a 

summary of the six DSH audit requirements). According to CMS officials,

DSH audits provide more transparency about state DSH payments than 

previously existed, which can help the agency to better oversee these 

payments. CMS officials said that in the past the agency relied on states’ 

assurances and HHS OIG investigations to ensure that DSH payments 

were being made appropriately. CMS officials told us that the 2003 DSH 

audit mandate provides the first strong statutory requirement for states 

reporting information about their DSH payments. Additionally, a provision 

in the statute authorizes CMS to withhold federal matching funds for DSH 

payments for states that do not submit their DSH audits and reports on 

time. CMS withheld four states’ federal matching funds for DSH payments 

in 2011, totaling about $92 million, because the states did not submit 

audits and reports as required. After the states submitted DSH audits and 

reports, CMS provided the states with the withheld federal matching 

funds.

DSH Audits and 

Reports Provide 

Information That Can 

Improve Federal 

Oversight by 

Illuminating Needed 

Changes to DSH 

Payments 

Audits Provide CMS with 

Enhanced Information for 

Overseeing States’ 

Compliance with Key DSH 

Requirements and Show 

That Most States May 

Need to Take Corrective 

Actions 
 

Page 13 GAO-13-48 Oversight of Medicaid Supplemental Payments

Table 1: Disproportionate Share Hospital (DSH) Audit Requirements Established by 2008 Final Rule

DSH audit requirement Description

DSH payments do not exceed hospitals’ 

uncompensated care costs 

DSH payments made to each hospital are limited to the uncompensated care costs 

calculated by the auditors using acceptable data sources and methods established by 

the Centers for Medicare & Medicaid Services (CMS) in the 2008 final rule.

Hospital uncompensated care costs are 

accurately calculated 

a

Only the cost of inpatient and outpatient services provided to Medicaid and uninsured 

patients can be included in the calculation of hospitals’ uncompensated care costs. The 

inclusion of ineligible costs, such as physician costs, would inflate a hospital’s 

uncompensated care costs, which could result in a DSH overpayment.

Any Medicaid payment surpluses are 

applied against the uncompensated care 

costs of uninsured patients when 

calculating hospitals’ total uncompensated 

care costs 

b

States’ procedures for calculating hospitals’ uncompensated care costs must ensure that

all Medicaid surpluses, that is, payments that are in excess of Medicaid costs for 

providing hospital services to Medicaid patients, are used to offset the uncompensated 

care costs of uninsured patients.c

Qualified hospitals are allowed to retain 

their DSH payments 

If hospitals did not account for all Medicaid payment 

surpluses, the amount of their uncompensated care costs would be inflated, which could 

result in a DSH overpayment.

Hospitals must meet certain federal qualifications to be eligible to receive DSH 

payments, and payments must be retained by the hospital and be available to offset 

uncompensated care costs.d

State has records of all payments and 

expenditures related to Medicaid and 

uninsured patients 

In addition, auditors must ensure that DSH payments made 

to each hospital are not returned to the state and used for other purposes.

States must document and retain all information and records of payments and 

expenditures related to hospital services provided to Medicaid and uninsured patients.

State has documented its methodologies 

for determining hospitals’ uncompensated 

care costs 

States must have documentation describing their methods for calculating hospitalspecific uncompensated care costs, including the state’s definition of incurred costs for 

Medicaid and uninsured patients.

Source: GAO summary of regulations.

Notes: Regulatory information is from Disproportionate Share Hospital Payments, Final Rule 73 Fed. 

Reg. 77904 (Dec. 19, 2008) (codified at 42 C.F.R. Parts 447 and 455).

a

The 2008 final rule prescribed specific methodologies by which states are to calculate costs for the 

purpose of determining hospital-specific DSH limits. In some cases, these methodologies may differ 

from actual state practices for calculating hospital-specific DSH limits and payments in 2007, and 

could account for certain hospitals receiving DSH payments in excess of the limits calculated using 

the 2008 final rule methodologies.

b

The 2008 final rule specifically excludes physician costs from the definition of “hospital services” that 

is used to determine hospital-specific DSH limits; however, some states have historically included the 

cost of physician services in such calculations. Additionally, in January 2012 CMS issued a proposed 

rule to revise the definition of eligible uninsured costs used to calculate uncompensated care costs 

and reiterated CMS’s past position that costs associated with bad debt, including unpaid coinsurance 

and deductibles, as well as cost of services provided to individuals who are inmates in a public 

institution or are otherwise involuntarily held in secure custody as result of criminal charges, cannot 

be included in the calculation of hospital uncompensated care costs. Under the proposed rule, the 

costs of services provided to individuals whose health insurance coverage has been exhausted or did 

not cover the specific service provided would be considered uninsured costs when calculating 

uncompensated care costs. The rule also proposes that the costs of services provided to American 

Indians / Alaska Natives who have Indian Health Service and tribal health program coverage would 

be considered uninsured if the Indian Health Service or tribal health program coverage did not 

provide the services or authorize coverage for the services. Under the 2008 final rule, the costs of 

services provided to American Indians / Alaska Natives who had Indian Health Service or tribal health 

program coverage and to individuals whose health insurance coverage had been exhausted or did 

not cover the specific service provided were not considered eligible uninsured costs. The new 

definition of uninsured costs will be effective for DSH audits and reports that cover DSH payments 

made in 2011, which states will submit to CMS in 2014. The proposed rule also states that the 
 

Page 14 GAO-13-48 Oversight of Medicaid Supplemental Payments

definition of uninsured costs may affect the calculation of uncompensated care costs for some 

hospitals, depending upon the method utilized by the hospital or state in calculating uncompensated 

care costs prior to the effective date of a final rule. Hospitals affected by this change should have 

higher uncompensated care costs, according to the proposed rule. As of November 2012, this rule 

had not been finalized. See 77 Fed. Reg. 2500 (Jan. 18, 2012).

c

In our November 2009 report, we identified a state that omitted Medicaid surpluses when calculating 

the uncompensated care costs for some of its hospitals, resulting in DSH payments in excess of the 

hospitals’ actual uncompensated care costs. The state terminated this practice during the course of 

that review. See GAO-10-69. According to a CMS official, this requirement is intended to address 

such practices by ensuring that states do not omit Medicaid surpluses when calculating the 

uncompensated care costs. However, the official added that the requirement is not an authorization 

for states to make regular or non-DSH supplemental Medicaid payments for uninsured individuals or 

other non-Medicaid purposes.

d

In order for a hospital to qualify as a DSH hospital, it must have at least two obstetricians who have 

staff privileges at the hospital and who have agreed to provide obstetric services to individuals who 

are entitled to medical assistance for such services under the state plan. Children’s hospitals and 

certain hospitals that do not offer nonemergency obstetric services are exempt from this requirement. 

In addition, the hospital must have a Medicaid inpatient utilization rate of at least 1 percent. 42 U.S.C. 

§ 1396r-4(d).

Our analysis of findings from the 2010 DSH audits illustrates the types of 

changes that states may need to make to their DSH payments by 2014 to 

avoid potential loss of federal funds or having to redistribute payments in 

the future.36 For example, we found that 44 of 49 states making DSH 

payments in 2007, and hence submitting audits in 2010, made payments 

to at least one hospital that did not comply with one or more of the six 

DSH audit requirements. Specifically, in 21 of these 44 states, DSH 

payments to at least 30 percent of the hospitals did not comply with one 

or more of the requirements. States were directed to use findings from 

audits completed during the transition period to make any necessary 

changes, beginning with payments made in 2011.37

 

36Under the 2008 final rule, the independent auditors may be the state audit agency or 

any other Certified Public Accountant (CPA) firm that operates independently from either 

the Medicaid agency or the hospitals being audited. States may not use non-CPA firms, 

fiscal intermediaries, or independent certification programs currently in place to audit 

uncompensated care costs, nor expand audits of hospital financial statements to obtain 

audit certification of the hospital-specific DSH limits. Of the 49 2010 DSH audits, 

36 were performed by two national CPA firms, and the remaining 13 audits were 

performed by state audit agencies and other CPA firms. 

Action in response to 

noncompliance begins with audits of the 2011 DSH payments, which 

must be submitted to CMS in 2014. At that time, states found to be 

noncompliant with DSH audit requirements may be subject to loss of 

federal funds or may be required to redistribute any excess DSH 

payments to other DSH hospitals. As a result, these states may need to 

37The transition period applies to 2010 through 2013 DSH audits, which provide auditors’ 

findings on DSH payments made from 2005 through 2010. 
 

Page 15 GAO-13-48 Oversight of Medicaid Supplemental Payments

take corrective actions by 2014, when the transition period ends, to 

resolve any ongoing noncompliance.

Our analysis of the 2010 audits of the 2007 DSH payments showed the 

following:

• Forty-one states made DSH payments to 717 hospitals in 2007 that 

exceeded the hospitals’ uncompensated care costs, as calculated by 

independent auditors using data sources and methods that CMS 

established in the 2008 final rule. The number of hospitals that 

received excess payments ranged from 1 each in Arkansas, the 

District of Columbia, Hawaii, Oregon, and Vermont to 114 in Missouri.

• Nine states did not accurately calculate uncompensated care costs for 

206 hospitals because they included ineligible costs. Examples of 

ineligible costs, as described by the 2008 final rule, included those for 

nonhospital services that are not allowed, such as physician services, 

and those for services provided to patients whose third-party 

insurance had either been exhausted or did not cover the specific 

service.38

 

38In January 2012, CMS issued a proposed rule to revise the definition of eligible 

uninsured costs used to calculate uncompensated care costs, and reiterated CMS’s past 

position that costs associated with bad debt, including unpaid coinsurance and 

deductibles, as well as cost of services provided to individuals who are inmates in a public 

institution or are otherwise involuntarily held in secure custody as result of criminal 

charges, cannot be included in the calculation of hospital uncompensated care costs. 

Under the proposed rule, the costs of services provided to individuals whose health 

insurance coverage has been exhausted or did not cover the specific service provided 

would be considered uninsured costs when calculating uncompensated care costs. The 

rule also proposes that the costs of services provided to American Indians / Alaska 

Natives who have Indian Health Service and tribal health program coverage would be 

considered uninsured if the Indian Health Service or tribal health program coverage did 

not provide the services or authorize coverage for the services. Under the 2008 final rule, 

the costs of services provided to American Indians / Alaska Natives who had Indian Health 

Service or tribal health program coverage and to individuals whose health insurance 

coverage had been exhausted or did not cover the specific service provided were not 

considered eligible uninsured costs. The new definition of uninsured costs will be effective 

for DSH audits and reports that cover DSH payments made in 2011, which states will 

submit to CMS in 2014. The proposed rule also states that the definition of uninsured 

costs may affect the calculation of uncompensated care costs for some hospitals, 

depending upon the method utilized by the hospital or state in calculating uncompensated 

care costs prior to the effective date of a final rule. Hospitals affected by this change 

should have higher uncompensated care costs, according to the proposed rule. As of 

November 2012, this rule had not been finalized.
 

Page 16 GAO-13-48 Oversight of Medicaid Supplemental Payments

• Fifteen states made DSH payments to a total of 58 hospitals that 

either did not retain their DSH payments or were not qualified to 

receive them. Auditors found that 18 of these hospitals did not retain 

their DSH payments, while the remaining 40 hospitals were not 

qualified because these hospitals did not meet the federal 

requirements to receive DSH payments. For example, some of these 

hospitals did not meet the requirement of having a Medicaid inpatient 

volume of at least 1 percent of their total workload. 

Table 2 summarizes the number of hospitals for which states’ DSH 

payments complied or did not comply with audit requirements, and 

appendix II provides similar information by state. In addition, the table 

includes information on the extent to which auditors could not determine 

compliance with DSH audit requirements because of data reliability or 

documentation issues.
 

Page 17 GAO-13-48 Oversight of Medicaid Supplemental Payments

Table 2: Summary of the 2010 Disproportionate Share Hospital (DSH) Audit Findings for 49 States, by DSH Audit Requirement

Compliance with requirement

Noncompliance with 

requirement

Compliance with requirement 

could not be determined

DSH audit 

requirements

Number of 

hospitals

As percentage of 

total hospitalsa Number of hospitals

As percentage of 

total hospitalsa Number of hospitals

As percentage of 

total hospitals

DSH payments do not 

exceed hospital 

uncompensated care costs

a

2,008 68.0% 717 24.3% 228 7.7%

Uncompensated care 

costs are accurately 

calculated 1,752 59.3 206 7.0 b 995 33.7

Any Medicaid surplus is 

applied against uninsured 

uncompensated care costs 1,851 62.7 c 18 0.6 1,084 36.7

Qualified hospitals are 

allowed to retain their 

DSH payments 2,638 89.3 58 2.0 d 257 8.7

State has records of all 

payments and expenditures 

related to Medicaid and 

uninsured patients 2,470 83.6 106 3.6 377 12.8

State documented its 

method for calculating 

uncompensated costs 2,679 90.7 261 8.8 13 0.4

Source: GAO analysis of Centers for Medicare & Medicaid Services data.

Notes: Data are from 2010 DSH audits of 2007 DSH payments. Percentages of hospitals in each

compliance category may not add to 100 percent due to rounding.

a

Percentages are based on GAO analysis of 2010 DSH audits of 2007 DSH payments to 2,953 DSH 

hospitals. We analyzed independent auditor findings on states’ compliance with each of the six 

requirements and identified the number of hospitals for which there was a determination of 

compliance or noncompliance, or compliance could not be determined. A total of 3,104 hospitals were 

included in the 2011 DSH audits. We excluded 151 hospitals from our analysis, including those that 

were closed, did not receive a DSH payment, or were duplicates.

b

For 83 of these 206 hospitals, auditors found noncompliance on the basis of reviewing only a limited 

number of hospitals in five states. Thus compliance with respect to the remaining hospitals that were 

not reviewed by the auditors could not be determined for these states.

c

For hospitals that did not have a Medicaid surplus, we categorized the DSH payments as being in 

compliance.

d

DSH payments to 18 of these hospitals were categorized as noncompliant because the hospitals did 

not retain their DSH payments, while the DSH payments to the remaining 40 hospitals were 

categorized as noncompliant because the hospitals were not qualified to receive DSH payments.
 

Page 18 GAO-13-48 Oversight of Medicaid Supplemental Payments

The annual DSH reports provide information CMS can use to better align 

the states’ federal DSH allotments with their levels of uncompensated 

care, as required by the Patient Protection and Affordable Care Act 

(PPACA). This act reduces national DSH funding beginning in fiscal year 

2014 and requires that CMS implement a method for making 

corresponding reductions in state DSH allotments on the basis of how 

states have distributed their DSH payments.39 Although states have broad 

flexibility in determining which hospitals receive DSH payments and the 

amount that each hospital receives, PPACA directs CMS to make the 

largest reductions in DSH allotments for states that do not target their 

DSH payments to (1) hospitals with high volumes of Medicaid inpatients 

and (2) hospitals that have high levels of uncompensated care.40

CMS can use the information from the DSH reports to identify the extent 

to which states are targeting their DSH payments to hospitals with high 

levels of uncompensated care. For example, our analysis of the 2010 

DSH reports showed that in 30 of 42 states,

CMS 

has identified the annual DSH reports as a key source of information for 

analyzing the relationship between DSH payments and uncompensated 

care and assessing potential new methods for establishing state DSH 

allotments. States are required to provide 17 pieces of information for 

each DSH hospital on their annual DSH reports, such as Medicaid and

low-income inpatient utilization rates, total Medicaid and uninsured 

inpatient and outpatient payments and costs, and DSH payments made to 

each hospital. (See app. III for a description of all 17 data elements states 

are required to include in DSH reports.)

41

 

39Under PPACA, total national DSH funding will be reduced by a total of about $18 billion 

from fiscal years 2014 to 2020. Pub. L. No. 111-148, §§ 2551, 10201(e), 124 Stat. 119, 

312, 920 (Mar. 23, 2010), as amended by the Health Care and Education Reconciliation 

Act of 2010, Pub. L. No. 111-152, § 1203, 124 Stat. 1029, 1053 (Mar. 30, 2010) 

(amending section 1923(f) of the Social Security Act, as codified at 42 U.S.C. § 1396r4(f)). 

the hospitals that received 

40Although states are required to make DSH payments to hospitals treating large numbers 

of Medicaid or low-income patients, states may also make DSH payments to other 

hospitals as long as at least 1 percent of their patients are Medicaid patients and, with 

certain exceptions, the hospitals have at least two obstetricians who have staff privileges 

and have agreed to provide obstetric services to individuals who are entitled to medical 

assistance for such services under the state plan. 42 U.S.C. § 1396r-4(d). 

41Massachusetts and Tennessee did not make DSH payments in 2007 and did not submit 

DSH reports. The DSH reports in seven additional states (Arkansas, Delaware, Iowa, 

Mississippi, Pennsylvania, South Dakota, and Wisconsin) did not include the necessary 

data to analyze DSH payments and uncompensated care.

DSH Reports Provide 

Information That Can Help 

CMS Align States’ DSH 

Allotments with 

Uncompensated Care 

Costs 
 

Page 19 GAO-13-48 Oversight of Medicaid Supplemental Payments

the largest share of the state’s DSH payments did not provide the largest 

share of the state’s total uncompensated care.42 (See fig. 2, which shows 

the share of DSH payments received and the share of uncompensated 

care provided by the 10 percent of total DSH hospitals in each state that 

received the largest DSH payments.) In 11 states the 10 percent of the 

hospitals receiving the largest DSH payments provided a larger share of 

the state’s total uncompensated care and received a smaller share of the 

state’s total DSH payments.43

 

42For the purposes of this report, we consider the hospitals receiving the largest DSH 

payments in each state to be the 10 percent of total DSH hospitals in the state that 

received the largest DSH payments. When calculating the number of DSH hospitals 

representing 10 percent, we rounded up to the nearest whole number. 

(See app. IV for additional information 

about the share of DSH payments and uncompensated care for the 

10 percent of DSH hospitals that received the largest DSH payments in 

the state and the 90 percent of DSH hospitals that received the smallest 

DSH payments in each state.)

43In the remaining state, Maine, the share of DSH payments and uncompensated care 

cost were equal for the 10 percent of the hospitals receiving the largest DSH payments.
 

Page 20 GAO-13-48 Oversight of Medicaid Supplemental Payments

Figure 2: Share of Disproportionate Share Hospital (DSH) Payments Received and Share of Uncompensated Care Provided by 

the 10 Percent of DSH Hospitals Receiving the Largest DSH Payments in 2007, Ranked by Difference between Share of DSH 

Payments and Share of Uncompensated Care
 

Page 21 GAO-13-48 Oversight of Medicaid Supplemental Payments

Notes: For the purpose of this report, we consider the hospitals receiving the largest DSH payments 

in each state to be the 10 percent of total DSH hospitals in the state that received the largest DSH 

payments. When calculating the number of DSH hospitals representing 10 percent, we rounded up to 

the nearest whole number. Massachusetts and Tennessee did not make DSH payments in 2007 and 

did not submit DSH reports. Some states operate HHS-approved Section 1115 Medicaid 

demonstrations under which the state does not make DSH payments directly to hospitals. For 

example, Tennessee incorporated DSH funding into payments to managed care organizations, and 

all of Massachusetts’s DSH funds are used to support a special fund for safety-net health care 

providers. The DSH reports for Arkansas, Delaware, Iowa, Mississippi, Pennsylvania, South Dakota, 

and Wisconsin did not include the necessary data to analyze DSH payments and uncompensated 

care. In analyzing uncompensated care in California, we did not adjust for public hospitals authorized 

by law to receive DSH payments of up to 175 percent of their uncompensated care.

a

In the District of Columbia and Florida, the 10 percent of total DSH hospitals in the state that 

received the largest DSH payments did not in the aggregate have uncompensated care costs. 

Rather, in these states the hospitals receiving the largest DSH payments in the aggregate had a 

surplus—that is, total regular and non-DSH payments exceeded total costs for Medicaid and 

uninsured patients. The surplus results in the hospitals’ share of total state uncompensated care 

being a negative percentage. For example, in Florida, a $13 million surplus (a positive number) 

divided by the state’s total uncompensated care of $506 million (a negative number) results in 

negative 2.6 percent. However, we do not show negative percentages on this figure, but instead 

report the hospital’s share of the state’s total uncompensated care as 0 percent.

b

In New Mexico, the 90 percent of total DSH hospitals in the state that together received the smallest 

DSH payments did not have uncompensated care costs.

Information similar to that required for DSH supplemental payments, such 

as information on facility-specific payments and on state compliance with 

federal requirements, does not exist to the same extent for non-DSH 

supplemental payments. However, the limited information that is available 

on non-DSH payments to DSH hospitals demonstrates the potential need 

for similar reports and audits of non-DSH payments to enhance CMS’s 

ability to oversee non-DSH payments.

Information specific to individual facilities is not available for non-DSH 

payments to the same extent that it is for DSH payments, since non-DSH 

payments are not subject to the same reporting and audit requirements. 

While some limited information about non-DSH payments made to DSH 

hospitals can be found in the annual DSH reports that states must submit, 

information about non-DSH payments made to hospitals that are not 

eligible to receive DSH payments—or other health care facilities, such as 

nursing homes—does not exist at the facility level. In addition, some 

information on non-DSH payments is available in the quarterly 

expenditure reports that states submit to CMS to obtain the federal 

Information on NonDSH Payments Does 

Not Exist to the Same 

Extent as for DSH 

Payments, and 

Available Reports 

Suggest That Such 

Information Could 

Enhance Oversight

Facility-Specific Payment 

Information and 

Independent Audits Do 

Not Exist to the Same 

Extent for Non-DSH 

Payments That They Do 

for DSH Payments
 

Page 22 GAO-13-48 Oversight of Medicaid Supplemental Payments

matching funds for Medicaid payments made. These reports include the 

state’s non-DSH payments aggregated by the facility’s ownership type—

local-government-owned or local-government-operated, stategovernment-owned or state-government-operated, or privately owned or 

operated—and by some categories of service, such as inpatient and 

outpatient hospital services,44 but do not include facility-specific 

payments.45

Table 3: Information That States Are Required to Provide to the Centers for Medicare & Medicaid Services on Medicaid 

Disproportionate Share Hospital (DSH) and Non-DSH Supplemental Payments Made to Hospitals, by Source of Information

(See table 3 for information states are required to provide to 

CMS for DSH payments, in comparison with that required for non-DSH 

payments.)

Source Information 

Required for 

DSH payments

Required for nonDSH payments

Annual DSH reports Supplemental Medicaid payments made, by facility Yes Partial

Quarterly state 

expenditure reports

a

Payments made, by category of service Yes Partial

Quarterly state 

expenditure reports

b

Payments made, by provider ownership type No Yes

Annual DSH audits Independent audits of compliance with federal requirements Yes No

Source: GAO.

a

Only available for hospitals that receive DSH payments and are included in states’ annual DSH 

reports.

b

Only available for some categories of service, such as inpatient and outpatient hospital services, but 

not others, such as mental health services or clinic services.

Without information on allocations of non-DSH payments to individual 

providers, CMS and others are unable to identify or assess total Medicaid 

funding received by individual providers and how Medicaid payments 

relate to providers’ Medicaid costs. The targeting of non-DSH 

supplemental payments to certain providers may be necessary and 

 

44Starting with the first quarter of fiscal year 2010, CMS began requiring states to report 

non-DSH payments for six categories of service: inpatient hospital services, outpatient 

hospital services, nursing facility services, physician and surgical services, other 

practitioners’ services, and intermediate care facility services. 

45We recently reported—using available information in quarterly expenditure reports—that 

facilities receiving non-DSH payments, other than DSH hospitals, received at least 

$1.6 billion in non-DSH supplemental payments in fiscal year 2010. The exact amount of 

non-DSH supplemental payments for these other facilities was unknown because state 

reporting was incomplete. See GAO-12-694. 
 

Page 23 GAO-13-48 Oversight of Medicaid Supplemental Payments

appropriate to ensure, for example, that those providers serving larger 

numbers of Medicaid beneficiaries are appropriately compensated for 

their costs of serving those beneficiaries. However, without information on 

the providers to which payments are targeted, assessments of whether 

those payments are affecting beneficiary access to care and are not 

excessive in view of providers’ costs are not possible. For example, the 

Medicaid and CHIP Payment and Access Commission (MACPAC), the 

commission created by Congress to study Medicaid payment and access, 

reported in March 2012 on the data limitations at the federal level

regarding non-DSH payments, which it refers to as “UPL payments.” 

MACPAC noted that these payments can be an important source of 

revenue for certain providers. However, because these payments are not

necessarily associated with specific services or enrollees and are not 

reported at the provider level, it is difficult for state and federal 

policymakers to compare total Medicaid payments across providers and 

enrollment groups and to evaluate the effect of these lump-sum payments 

on payment methods and delivery models.46

Oversight of non-DSH payments is also constrained by the lack of audited 

information on non-DSH payments. Unlike DSH payments, states’ nonDSH payments are not subject to annual independent audits or standard 

requirements regarding the methods and data sources for calculating 

payment amounts. CMS and others have limited information regarding 

the reliability of the methods and data used to calculate payments, and 

the consistency of the payments with Medicaid payment principles. We 

and others have reported on aspects of selected states’ non-DSH 

payments and raised varied concerns regarding whether some states’ 

payments were used for Medicaid purposes and were consistent with 

economy and efficiency—key Medicaid principles. For example, our prior 

work in selected states has found that some states were making nonDSH payments that were vastly higher than the payments the facilities 

 

46MACPAC noted that without provider-specific information, it is not possible to identify 

how much Medicaid actually spends on specific services and populations or to make 

meaningful intra- or cross-state comparisons of payment amounts or methods; determine 

the ultimate disposition of federal funds that are provided to states for their Medicaid 

programs (i.e., which providers receive supplemental payments and in what amounts); or 

assess fully the extent to which payment policies affect efficiency, quality, and access to 

appropriate services. Furthermore, the effect of policies intended to promote certain 

outcomes through payment rates (e.g., pay for performance) may be muted by providers’ 

ability to access supplemental payments. See Medicaid and CHIP Payment and Access 

Commission, Report to the Congress on Medicaid and CHIP (Washington, D.C.: 2012).
 

Page 24 GAO-13-48 Oversight of Medicaid Supplemental Payments

would have received under regular Medicaid payment rates and were not 

retained by the providers for Medicaid purposes.47 We have also reported 

that non-DSH payments were made for similar purposes as DSH 

payments, and that selected states had used widely varying and 

inaccurate methods for calculating their non-DSH payment amounts.48

Similarly, the HHS OIG has reported for selected states that large nonDSH supplemental payments were made to certain providers that were 

returned to the state, not accurately calculated, and did not improve the 

quality of care provided to Medicaid beneficiaries.49

In 2004, we made recommendations to improve the oversight of these 

payments, including recommending that CMS establish uniform guidance 

for states that would set acceptable methods for calculating the amount of 

non-DSH supplemental payments and adopt requirements for facilityspecific reporting of non-DSH payments. At the time, CMS generally 

agreed with our recommendations, stating that it would issue guidance on 

the characteristics and principles underlying acceptable methods, and 

that it would also consider improvements in reporting requirements for 

non-DSH payments.

These reports have 

generally been focused on a small number of states—five or fewer—and 

have covered a limited time frame. Although CMS established an 

oversight initiative in 2003 to closely review state payment arrangements 

before approving them, not all existing payment arrangements had been 

reviewed.

50

 

47

However, as of November 2012, requirements 

implementing these recommendations had not been established. CMS 

officials said that they do not have plans to make changes to the 

oversight of non-DSH payments that would institute requirements similar 

to those for DSH payments, such as requiring annual facility-specific 

reporting of non-DSH payment information, clarifying permissible 

methods for calculating non-DSH payment amounts, and requiring annual 

independent audits of state non-DSH payment calculations. Officials 

stated that they were able to implement the DSH payment 

requirements—which encountered objections from states, hospitals, and 

GAO-04-228. 

48GAO-08-614 and GAO-04-228. 

49For example, see HHS, Office of the Inspector General, A-09-03-00055, A-04-03-03023, 

and A-10-04-00001.

50GAO-04-228. 
 

Page 25 GAO-13-48 Oversight of Medicaid Supplemental Payments

others—because they were required by law to do so, and that legislation 

would be needed for CMS to establish similar requirements for non-DSH 

payments.

The hospital-specific information on non-DSH payments that is available 

from DSH reports illustrates the potential utility of having such information 

for enhancing oversight. Using this information, CMS can determine the 

extent to which non-DSH payments are targeted to a small number of 

providers, are related to those providers’ Medicaid workload, and resulted 

in total Medicaid payments (regular Medicaid and non-DSH supplemental 

payments) that exceeded an individual provider’s costs of providing 

Medicaid services. This type of analysis can point to circumstances where 

a state’s payments to individual hospitals may warrant further scrutiny, to 

ensure the payments were made for Medicaid purposes and were 

consistent with Medicaid payment principles.

In reviewing states’ 2010 DSH reports, we found that a small proportion of 

DSH hospitals in each state received a large proportion of total non-DSH 

supplemental payments made to DSH hospitals and that payments were 

not always aligned with hospitals’ uncompensated Medicaid costs.51

Across the 43 states that reported making non-DSH payments in their 

DSH reports,52

 

51For our analysis, uncompensated Medicaid costs are the expenses incurred in providing 

Medicaid-covered services to Medicaid beneficiaries minus regular Medicaid payments 

the hospitals received. In conjunction with CMS’s 2008 final rule on DSH audits and 

reports, CMS also issued a DSH audit and reporting protocol to provide guidance and 

direction on how the audits were to be conducted, including methodology and data 

sources to be used in calculating hospitals’ payments and costs. The protocol requires 

that information in the DSH reports about DSH hospitals’ Medicaid payments and costs 

come from existing cost-reporting tools and documents, such as the Medicaid 

Management Information System, the approved state Medicaid plan, the Medicare 2552-

96 hospital cost report, and audited hospital financial statements or other auditable 

hospital accounting records. 

over $5.1 billion of the $7.6 billion in total non-DSH 

payments made to DSH hospitals went to the 10 percent of DSH 

52Eight states were excluded from our analysis of non-DSH supplemental payments. Of 

these eight states, two states (Massachusetts and Tennessee) did not make DSH 

payments in 2007 and did not submit DSH reports. Five states (Delaware, Maine, North 

Dakota, Vermont, and Wisconsin) did not report non-DSH supplemental payments in their 

DSH reports or did not make non-DSH supplemental payments in 2007. One state, South 

Dakota, was excluded from our analysis because we could not determine the reliability of 

its data.

Available Information 

Suggests That Reports and 

Audits for Non-DSH 

Supplemental Payments 

Could Improve CMS’s 

Ability to Oversee These 

Payments
 

Page 26 GAO-13-48 Oversight of Medicaid Supplemental Payments

hospitals in each state that received the largest non-DSH payments.53

The 2010 DSH reports also demonstrate how having more-detailed 

information on states’ non-DSH payments can improve CMS’s oversight 

for these payments, which have no facility-specific payment limits and for 

which states have flexibility in how they are distributed to providers. The 

2010 DSH reports suggest that states’ total regular Medicaid and nonDSH payments in some cases significantly exceeded the Medicaid costs 

experienced by the providers receiving those payments.

The proportion of non-DSH payments made to a small number of DSH 

hospitals was not always aligned with the hospitals’ uncompensated 

Medicaid costs, that is, total costs of Medicaid services provided to 

Medicaid beneficiaries minus total regular Medicaid payments received by 

the hospitals. For example, in 6 of 13 states, the 10 percent of DSH 

hospitals with the largest non-DSH payments received 90 percent or 

more of the non-DSH payments made to DSH hospitals, while their 

shares of total uncompensated Medicaid costs in the state were less than 

35 percent. The allocation of non-DSH payments to hospitals in this way 

raises questions about how the payments relate to the provision of 

Medicaid services and the purposes for which these payments are made. 

(See app. V for more information about the percentage and dollar amount 

of non-DSH payments made to, and the percentage of uncompensated 

Medicaid costs for, DSH hospitals in each state.)

54

 

53When calculating the number of DSH hospitals representing the 10 percent that 

received the largest share of non-DSH payments, we rounded up hospitals’ non-DSH 

payments to the nearest whole number.

Of the 43 

states that reported making non-DSH payments in their DSH reports, we 

found that in 39 states at least one hospital received total regular 

Medicaid and non-DSH supplemental payments in excess of Medicaid 

54In their annual DSH reports, states are required to report three categories of Medicaid 

payments that hospitals may have received: fee-for-service payments, managed care 

organization payments, and non-DSH supplemental payments. For the purpose of our 

report, we combined the fee-for-service payment and managed care organization payment 

amounts and refer to them as total regular Medicaid payments. States are also required to 

report the total Medicaid payments for each hospital, that is, the sum of the three 

categories of Medicaid payments hospitals may have received. For the 2010 reports, 

however, in some states this total also included other payments, such as payments a 

hospital received from another state Medicaid program and payments received from 

Medicare for Medicaid individuals who were eligible for both Medicaid and Medicare.
 

Page 27 GAO-13-48 Oversight of Medicaid Supplemental Payments

costs.55 On the basis of the hospital-specific information in these 

39 states’ 2010 DSH reports, a total of 505 DSH hospitals received total 

regular Medicaid and non-DSH payments in excess of Medicaid costs.56

• Of the 505 hospitals, 310 received a non-DSH payment that, when 

added to the regular Medicaid payments the hospital received, 

resulted in total Medicaid payments exceeding Medicaid costs by 

about $1.9 billion. For example, one hospital received almost 

$320 million in non-DSH payments, which when combined with 

$331 million in regular Medicaid payments exceeded the $410 million 

in costs experienced by the hospital in providing Medicaid services by 

about $241 million.

These hospitals’ payments exceeded costs by a total of about $2.7 billion. 

For these hospitals, non-DSH payments were a significant factor in 

Medicaid payments exceeding Medicaid costs. 

• The remaining 195 hospitals received regular Medicaid payments that 

exceeded Medicaid costs before they received a non-DSH payment, 

and total payments exceeded costs by about $900 million. For 

example, one hospital received almost $62 million in non-DSH 

payments even though regular Medicaid payments made to the 

hospital exceeded its costs of providing Medicaid services by over 

$52 million.

(See fig. 3 and app. VII for the number and percentage of DSH hospitals 

in each state that received a non-DSH payment and for which their 

regular Medicaid and non-DSH payments exceeded Medicaid costs and 

the amounts by which payments exceeded costs.)

 

55The remaining four states (Connecticut, the District of Columbia, Hawaii, and Nebraska) 

did not have any hospitals that received total regular Medicaid and non-DSH payments in 

excess of Medicaid costs.

56For purposes of this report, the term Medicaid costs refers to expenses incurred in 

providing Medicaid-covered services to Medicaid beneficiaries.

Another 200 hospitals did not receive a non-DSH payment, but their regular Medicaid 

payments exceeded Medicaid costs. For these hospitals, as well as the 505 hospitals that 

received total regular Medicaid and non-DSH payments in excess of Medicaid costs, we 

also analyzed their DSH payments and uncompensated care costs. (See app. VI for the 

results of this analysis.)
Page 28 GAO-13-48 Oversight of Medicaid Supplemental Payments

Print instructions To print expanded information, see appendix VII.

Source: GAO analysis of Centers for Medicare & Medicaid Services data.

Notes: Data are from 2010 DSH reports of 2007 DSH payments. Total Medicaid payments are regular 

Medicaid and non-DSH supplemental payments. Total Medicaid costs are the expenses incurred in 

providing Medicaid-covered services to Medicaid beneficiaries.

a

Massachusetts and Tennessee did not make DSH payments in 2007 and did not submit DSH 

reports. Delaware, Maine, North Dakota, South Dakota, Vermont, and Wisconsin did not report the 

necessary information to analyze Medicaid payments and costs.

Interactive graphic Figure 3: Number and Percentage of Disproportionate Share Hospital (DSH) Hospitals That 

Received Regular Medicaid and Non-DSH Supplemental Payments in Excess of Medicaid Costs, 

and Amounts by Which Payments Exceeded Costs, by State

Move mouse over the above categories to view the number of hospitals with Medicaid payments exceeding Medicaid costs, the percentage of 

hospitals with Medicaid payments exceeding Medicaid costs, or the dollar amounts by which Medicaid payments exceeded Medicaid costs.
 

Page 29 GAO-13-48 Oversight of Medicaid Supplemental Payments

Regular and non-DSH Medicaid payments are not limited to providers’ 

costs of delivering Medicaid services; however, as Medicaid payments, 

they are intended to pay for Medicaid-covered services provided to 

Medicaid beneficiaries. As a result, Medicaid payments that greatly 

exceed Medicaid costs raise questions about the purpose of the 

payments, including how they relate to Medicaid services, whether they 

are consistent with economy and efficiency, and whether they contribute 

to beneficiaries’ access to quality care. For example, recent research 

suggests that Medicaid supplemental payments were a key factor that 

resulted in overall profits for government-owned and governmentoperated hospitals reviewed.57 Hospital-specific information can be 

helpful to CMS and others for understanding, at the provider level, the 

relationship of supplemental payments to both regular Medicaid payments 

and Medicaid costs, which currently cannot be assessed given available 

information. According to CMS officials, since 2003, CMS typically has 

assessed the appropriateness of supplemental payment arrangements 

when a state proposes implementing a new payment arrangement or 

makes changes to established programs. In reviewing proposals, CMS 

reviews how the payments are calculated and the purposes for which 

they are made. We have found, however, that some states have reported 

broad purposes for their non-DSH supplemental payments and that CMS 

has not reviewed all payment arrangements.58 States’ payment methods 

and payment arrangements can be complex and challenging to assess, 

and doing so can require significant time and resources.

 

57Researchers examined the financial performance of 150 hospitals that they identified as 

providing a large share of care to low-income, uninsured, and Medicaid populations. The 

study examined hospitals’ finances during 2003 to 2007 and compared the financial 

performance of government-owned and government-operated hospitals, nonprofit 

hospitals, and private for-profit hospitals. Researchers found that government-owned and 

government-operated hospitals had positive operating margins (profits) in part because of 

supplemental Medicaid payments. In contrast, nonprofit and private for-profit hospitals had 

negative operating margins. Nancy M. Kane et al., “Strained Local and State Government 

Finances among Current Realities That Threaten Public Hospitals’ Profitability,” Health 

Affairs, vol. 31, no. 8 (2012).

58See GAO-08-614. 
 

Page 30 GAO-13-48 Oversight of Medicaid Supplemental Payments

Medicaid is a large and growing program and is vital to tens of millions of 

vulnerable individuals, who rely on it for their health care. To understand 

the complex program and make decisions on how best to oversee it, 

decision makers at the federal level need reliable and accurate 

information on how program resources are allocated and spent. 

Supplemental payments are a significant and growing component of 

Medicaid spending, and non-DSH supplemental payments appear to be a 

contributor to this growth.

For more than two decades, concerns have been raised about the lack of 

transparency and accountability in CMS’s oversight of both DSH and nonDSH supplemental payments. For example, information has been lacking 

on the distribution of supplemental payments, the relationship of 

supplemental payments to regular Medicaid payments and to the level of 

services provided, and the purposes for which supplemental payments 

are made. The annual DSH reports that states are now submitting to 

CMS, and the annual independent audits of states’ compliance with key 

federal DSH audit requirements, including calculations of DSH payment 

limits, are important steps toward improving transparency and 

accountability for Medicaid DSH payments. They should help improve the 

allocation of these payments to qualified hospitals in future years. Similar 

information is lacking, however, for non-DSH payments. Moreover, the 

limited information available on non-DSH payments shows that a large 

share of these payments are paid to a small number of hospitals, and that 

when these payments are combined with regular Medicaid payments, 

hundreds of hospitals may be receiving Medicaid payments well in excess 

of their actual costs of providing Medicaid services. Such excessive 

payments raise concerns, including whether such payments are 

consistent with the requirement that provider payments be economical 

and efficient. These concerns highlight the need for clear guidelines 

regarding the calculation of non-DSH payment amounts.

We believe our longstanding concerns regarding the need for improved 

transparency and accountability for supplemental payments are still valid. 

In 2004, to better ensure the fiscal integrity of Medicaid, we made 

recommendations to CMS to address concerns about transparency for 

large non-DSH payments and about widely varying and inaccurate state 

calculations of non-DSH payment amounts. However, as of November

2012, CMS had not established facility-specific reporting requirements or 

clarified permissible methods for calculating non-DSH payment amounts. 

In addition, states’ non-DSH payments are not subject to annual 

independent audits. Given the size and growth of non-DSH payments, 

which now exceed DSH payments in total amounts, there is an urgent 

Conclusions 
 

Page 31 GAO-13-48 Oversight of Medicaid Supplemental Payments

need for improvements in the transparency of and accountability for nonDSH supplemental payments. Accordingly, we are raising these issues to 

the Congress as a new matter for its consideration.

To improve transparency of and accountability for Medicaid non-DSH 

supplemental payments, we suggest that Congress consider requiring the 

Administrator of CMS to (1) improve state reporting of non-DSH 

supplemental payments, including requiring annual reporting of payments 

made to individual facilities and other information that the agency 

determines is necessary to oversee non-DSH supplemental payments; 

(2) clarify permissible methods for calculating non-DSH supplemental 

payments; and (3) require states to submit an annual independent 

certified audit verifying state compliance with permissible methods for 

calculating non-DSH supplemental payments.

We provided a draft of this report to HHS for comment. In its written 

comments, HHS agreed that improved reporting and oversight of nonDSH supplemental payments was needed. HHS noted that some efforts 

were under way to do so, including a comprehensive review of state 

supplemental payment methodologies to ensure that payments are 

compliant with Medicaid statute and federal regulation. HHS also noted 

that work was under way to evaluate and improve the implementation of 

Medicaid DSH certified audits and reports. HHS’s letter is reprinted in 

appendix VIII.

As agreed with your offices, unless you publicly announce the contents of 

this report earlier, we plan no further distribution until 30 days from the 

report date. At that time, we will send copies to the Secretary of Health 

and Human Services, the Administrator of the Centers for Medicare & 

Medicaid Services, and other interested parties. In addition, the report will 

be available at no charge on the GAO website at http://www.gao.gov. 

Matter for 

Congressional 

Consideration 

Agency Comments
 

Page 32 GAO-13-48 Oversight of Medicaid Supplemental Payments

If you or your staff have any questions about this report, please contact 

me at (202) 512-7114 or iritanik@gao.gov. Contact points for our Offices 

of Congressional Relations and Public Affairs may be found on the last 

page of this report. Major contributors to this report are listed in 

appendix IX. 

Katherine M. Iritani

Director, Health Care
Appendix I: Scope and Methodology

Page 33 GAO-13-48 Oversight of Medicaid Supplemental Payments

This appendix describes in detail our work to determine how the 

information collected from disproportionate share hospital (DSH) audits 

and reports facilitates the Centers for Medicare & Medicaid Services’ 

(CMS) oversight of DSH supplemental payments and the extent to which 

similar information exists for overseeing non-DSH supplemental 

payments. We obtained from CMS information from 49 states’ 2010 DSH 

audits and reports for payments made in 2007, the most-recent year 

available at the time of our review.1 We did not evaluate the quality of the 

DSH audits or the audit processes the independent auditors used. We 

also did not independently verify the accuracy of the DSH report data. We 

checked the audit and report data for obvious errors and omissions and 

interviewed CMS officials to resolve any identified discrepancies. In 

reviewing the audit data, we also removed from our analysis hospitals 

that were closed, were out-of-state (not located in the state for which the 

audit was conducted), and had no reported DSH payments (either $0 was 

reported or no information was provided), as well as hospitals that 

appeared twice, which was the case in only one state’s audit. In reviewing 

the DSH report data, we removed hospitals with incomplete information or 

for which independent auditors had raised questions about data reliability 

or the hospital’s qualifications for receiving a DSH payment. The number 

of hospitals removed for each type of analysis differed because each 

analysis was based on a review of different information in the DSH 

reports. We did not remove hospitals for which auditors had noted that 

information provided by states and hospitals could not be confirmed. On 

the basis of this review, we determined that the DSH audits and reports 

were sufficiently reliable for the purposes of this report, and we accounted 

for any limitations in these data during our analyses. We also reviewed 

applicable laws and regulations.

 

1

In this report, we use the term state to refer to the 50 states and the District of Columbia. 

Massachusetts and Tennessee did not make DSH payments in 2007 and did not submit 

DSH audits or reports. Some states operate HHS-approved Section 1115 Medicaid 

demonstrations under which the state does not make DSH payments directly to hospitals. 

For example, Tennessee incorporated DSH funding into payments to managed care 

organizations, and all of Massachusetts’s DSH funds were used to support a special fund 

for safety-net health care providers. 

Appendix I: Scope and Methodology
Appendix I: Scope and Methodology

Page 34 GAO-13-48 Oversight of Medicaid Supplemental Payments

To determine how the information collected from DSH audits facilitates 

CMS’s oversight of DSH payments, we analyzed the DSH audits for the 

49 states that submitted them to determine the extent of states’ 

compliance with the six audit requirements established by the 2008 final 

rule: (1) DSH payments do not exceed hospitals’ uncompensated care 

costs; (2) hospital uncompensated care costs are accurately calculated; 

(3) any Medicaid payment surpluses are applied against the 

uncompensated care costs of uninsured patients; (4) qualifying hospitals 

are allowed to retain the DSH payments that they receive; (5) the state 

has records of all payments and expenditures related to Medicaid and 

uninsured patients; and (6) the state has documented its methods for 

calculating uncompensated care costs. Each audit documented 

independent auditors’ findings regarding the extent to which states’ DSH 

payments complied with these six requirements. We analyzed the audit

findings, and for each state we determined the extent of compliance with 

the audit requirements by identifying the number of hospitals (1) whose 

DSH payments complied with the audit requirement; (2) whose DSH 

payments did not comply with the audit requirement; and (3) for which 

compliance of their DSH payments with the audit requirement could not 

be determined. Specifically, we determined the number of hospitals 

whose DSH payments complied with the audit requirements on the basis 

of the number of hospitals cited by auditors as compliant, or calculated 

the number on the basis of the number of hospitals auditors identified as 

noncompliant or whose compliance could not be determined. We 

determined the number of hospitals whose DSH payments did not comply 

with audit requirements on the basis of the number of hospitals cited by 

auditors as noncompliant, or calculated the number on the basis of the 

number of hospitals auditors identified as compliant or whose compliance 

could not be determined. The number of hospitals for which compliance 

of their DSH payments could not be determined was based on findings 

that explicitly identified hospitals whose compliance with the audit 

requirements could not be determined by auditors because, for example, 

documentation was not provided or the documentation provided was not 

sufficient for auditors to determine the level of compliance. We also 

calculated the number of hospitals for which compliance of their DSH 

payments could not be determined on the basis of the number of 

hospitals that auditors did not identify as being compliant or 

noncompliant. For this analysis, we removed 151 hospitals of the 3,104 

hospitals included in the 2010 DSH audits. As a result, our analysis 

reflects findings from the remaining 2,953 hospitals.

Analysis of DSH 

Audits and Reports 

for Oversight of DSH 

Payments 
Appendix I: Scope and Methodology

Page 35 GAO-13-48 Oversight of Medicaid Supplemental Payments

To determine how the information collected from DSH reports facilitates 

CMS’s oversight of DSH payments, we analyzed hospital-specific 

information from the 2010 DSH reports for 49 states to determine the 

extent to which DSH payments were targeted to hospitals with high levels 

of uncompensated care.2 Of these states, 7 states did not report the 

necessary data to analyze DSH payments and uncompensated care.3 We 

removed all 351 hospitals in these states. In addition, in the remaining 

42 states, we removed 876 hospitals for which data were missing or were 

deemed by us to be unreliable, so our analysis is based on 1,877 

hospitals in 42 states. The hospital-specific information in the reports 

includes payments received for Medicaid and uninsured patients, nonDSH supplemental payments, and the costs of care for Medicaid and 

uninsured patients.4 In conducting our analysis, we reviewed DSH 

payments made to DSH hospitals and the uncompensated care they 

provided to Medicaid and uninsured patients as a proxy for the amount of 

uncompensated care each hospital provided. We calculated the 

percentage of DSH payments made to, and uncompensated care 

provided by, the 10 percent of DSH hospitals that received the largest 

DSH payments in the state and the remaining 90 percent of DSH 

hospitals in each state.

 

2

Massachusetts and Tennessee did not make DSH payments in 2007 and did not submit 

DSH audits and reports. Some states operate HHS-approved Section 1115 Medicaid 

demonstrations under which the state does not make DSH payments directly to hospitals. 

For example, Tennessee incorporated DSH funding into payments to managed care 

organizations, and all of Massachusetts’s DSH funds were used to support a special fund 

for safety-net health care providers.

3

The 7 states that did not report the necessary data to analyze DSH payments and 

uncompensated care were Arkansas, Delaware, Iowa, Mississippi, Pennsylvania, South 

Dakota, and Wisconsin.

4

According to CMS’s general DSH audit and reporting protocol, information in DSH 

reports about payments and costs comes from existing cost-reporting tools and 

documents, such as the Medicaid Management Information System, approved state 

Medicaid plans, the Medicare 2552-96 hospital cost report, and audited hospital financial 

statements or other auditable hospital accounting records. 
Appendix I: Scope and Methodology

Page 36 GAO-13-48 Oversight of Medicaid Supplemental Payments

To determine the extent to which similar information exists to facilitate 

CMS’s oversight of non-DSH supplemental payments, we analyzed the 

information states submitted in their 2010 DSH reports for DSH payments 

made in 2007, which includes hospital-specific information on non-DSH 

payments made to DSH hospitals. Of the 49 states that submitted a 2010 

DSH report, 6 states were excluded from our analysis of non-DSH 

supplemental payments because they did not report non-DSH 

supplemental payments in their DSH reports, or did not make non-DSH 

supplemental payments in 2007, or the reliability of their data could not be 

determined.5

• Analyzed non-DSH payment information and Medicaid 

uncompensated care costs to identify the extent to which non-DSH 

payments were aligned with hospitals’ uncompensated Medicaid costs 

in each state. Specifically, we reviewed the non-DSH payments and 

Medicaid uncompensated care costs for these hospitals and 

calculated the percentage of non-DSH payments and Medicaid 

uncompensated care costs for the 10 percent of DSH hospitals that 

received the largest non-DSH payments in each state and for the 

remaining 90 percent of DSH hospitals in each state.

We removed all 105 hospitals in these states. In addition, in 

the remaining 43 states, we removed 330 hospitals for which data were 

missing or payments were not made, so our analysis is based on 2,669 

hospitals in 43 states. Using the information from these states’ DSH 

reports, we did the following:

• Analyzed the total regular Medicaid and non-DSH supplemental 

payments and total Medicaid costs to identify the number and 

percentage of DSH hospitals with combined regular Medicaid and 

non-DSH supplemental payments in excess of Medicaid costs, as well 

as the dollar amount by which Medicaid payments exceeded Medicaid 

costs, for DSH hospitals that received a non-DSH supplemental 

 

5

The 5 states that did not report non-DSH supplemental payments in their DSH reports or 

did not make non-DSH supplemental payments in 2007 were Delaware, Maine, North 

Dakota, Vermont, and Wisconsin. One state, South Dakota, was excluded from our 

analysis because we could not determine the reliability of its data.

Analysis of DSH 

Reports for Oversight 

of Non-DSH 

Supplemental 

Payments 
Appendix I: Scope and Methodology

Page 37 GAO-13-48 Oversight of Medicaid Supplemental Payments

payment.6 Specifically, we reviewed regular Medicaid and non-DSH 

payments made to these hospitals and the costs associated with 

treating Medicaid beneficiaries. We calculated the number and 

percentage of DSH hospitals in each state that both received 

combined regular Medicaid and non-DSH payments in excess of 

Medicaid costs and received a non-DSH payment. For these 

hospitals, we also calculated the amounts by which combined regular 

Medicaid and non-DSH payments exceeded Medicaid costs and 

determined whether regular Medicaid payments alone exceeded 

Medicaid costs or whether regular Medicaid payments, when 

combined with non-DSH payments, exceeded Medicaid costs.

We conducted this performance audit from December 2011 through 

November 2012 in accordance with generally accepted government 

auditing standards. Those standards require that we plan and perform the 

audit to obtain sufficient, appropriate evidence to provide a reasonable 

basis for our findings and conclusions based on our audit objectives. We 

believe that the evidence obtained provides a reasonable basis for our 

findings and conclusions based on our audit objectives.

 

6

In their annual DSH reports, states are required to report three categories of Medicaid 

payments that hospitals may have received: fee-for-service payments, managed care 

organization payments, and non-DSH supplemental payments. For the purpose of our 

report, we combined the fee-for-service payment and managed care organization payment 

amounts and refer to them as total regular Medicaid payments. States are also required to 

report the total Medicaid payments for each hospital, that is, the sum of the three 

categories of Medicaid payments hospitals may have received. For the 2010 reports, 

however, in some states this total also included other payments, such as payments a 

hospital received from another state Medicaid program and payments received from 

Medicare for Medicaid individuals who were eligible for both Medicaid and Medicare.
Appendix II: Extent of Compliance with DSH 

Audit Requirements in 2010 DSH Audits

Page 38 GAO-13-48 Oversight of Medicaid Supplemental Payments

In 2003, Congress mandated improved accountability for disproportionate 

share hospital (DSH) payments under the Medicare Prescription Drug, 

Improvement, and Modernization Act of 2003, by providing that the 

Secretary of Health and Human Services require states to submit annual 

independent certified audits and annual reports on their DSH payments.1

In 2008, the Centers for Medicare & Medicaid Services (CMS) issued a 

final rule to implement the 2003 DSH audit and report requirement.2

Tables 4 and 5 present more-detailed information on the results of our 

analysis of the 2010 DSH audits of the 2007 DSH payments on the extent 

of states’ compliance with each of the six DSH audit requirements. These 

requirements include

The 

2008 final rule laid out key audit and reporting requirements. The first sets 

of DSH audits and reports, covering payments made in 2005 through 

2007, were submitted to CMS in December 2010. Action in response to 

noncompliance begins with audits of the 2011 DSH payments, which 

must be submitted to CMS in 2014. At that time, states found to be 

noncompliant with DSH audit requirements may be subject to loss of 

federal funds or may be required to redistribute any excess DSH 

payments to other DSH hospitals. As a result, these states may need to 

take corrective actions by 2014, when the transition period ends, to 

resolve any ongoing noncompliance.

• DSH payments do not exceed hospitals’ uncompensated care costs,

• hospital uncompensated care costs are accurately calculated,

• any Medicaid payment surpluses are applied against the 

uncompensated care costs of uninsured patients,

• qualified hospitals are allowed to retain the DSH payments that they 

receive,

 

1

Pub. L. No. 108-173, § 1001(d), 117 Stat. 2066, 2430-2431 (2003) (adding section 

1923(j) to the Social Security Act) (codified, as amended, at 42 U.S.C. § 1395r-4(j)). 

2

Medicaid Program; Disproportionate Share Hospital Payments, 73 Fed. Reg. 77904 

(Dec. 19, 2008) (codified at 42 C.F.R. Parts 447 and 455; Medicaid Program; 

Disproportionate Share Hospital Payments; Correcting Amendment, 74 Fed. Reg. 18656 

(Apr. 24, 2009). CMS subsequently issued a notice of proposed rulemaking to revise 

certain provisions of this rule. Medicaid Program; Disproportionate Share Hospital 

Payments—Uninsured Definition, 77 Fed. Reg. 2500 (Jan. 18, 2012).

Appendix II: Extent of Compliance with DSH 

Audit Requirements in 2010 DSH Audits
Appendix II: Extent of Compliance with DSH 

Audit Requirements in 2010 DSH Audits

Page 39 GAO-13-48 Oversight of Medicaid Supplemental Payments

• the state has records of all payments and expenditures related to 

Medicaid and uninsured patients, and

• the state has documented its methods for calculating uncompensated 

care costs.
Appendix II: Extent of Compliance with DSH 

Audit Requirements in 2010 DSH Audits

Page 40 GAO-13-48 Oversight of Medicaid Supplemental Payments

Table 4: Extent of Compliance with Federal DSH Audit Requirements, by State, Audit Requirement, and Number of Hospitals 

as Reported in 2010 Disproportionate Share Hospital (DSH) Audits (part 1)

DSH payments do not exceed 

hospital uncompensated care 

costs

Hospital uncompensated 

care costs are accurately 

calculated

Any Medicaid surplus is 

applied against uninsured 

uncompensated care costs

State 

Total number 

of hospitals Met Not met

Could not 

be verified Met Not met

Could not 

be verified Met Not met

Could not 

be verified

Alabama 98 49 49 0 15 6 77 a 0 0 98

Alaska

b

4 4 0 0 3 0 1 4 0 0 

Arizona 40 40 0 0 40 0 0 40 0 0 

Arkansas 4 3 1 0 4 0 0 0 0 4

California

b

141 124 17 0 1 0 140 0 0 141

Colorado 47 0 0 47 0 0 47 0 0 47

Connecticut 35 0 0 35 0 0 35 0 0 35

Delaware 1 1 0 0 1 0 0 1 0 0 

District of Columbia 10 5 1 4 6 0 4 6 0 4 

Florida 63 44 19 0 63 0 0 63 0 0 

Georgia 109 83 26 0 109 0 0 109 0 0

Hawaii 15 14 1 0 15 0 0 15 0 0 

Idaho 35 30 5 0 35 0 0 35 0 0

Illinois 42 9 32 1 41 0 1 41 0 1 

Indiana 66 51 15 0 66 0 0 66 0 0 

Iowa 12 9 3 0 0 0 12 0 0 12

Kansas 45 23 22 0 42 0 3 45 0 0

Kentucky 108 82 26 0 105 0 3 108 0 0 

Louisiana 118 55 63 0 116 0 2 118 0 0

Maine 2 2 0 0 2 0 0 2 0 0 

Maryland 20 14 6 0 20 0 0 20 0 0 

Michigan 130 102 28 0 18 27 85 a 0 0 130

Minnesota

b

106 39 0 67 0 0 106 38 0 68

Mississippi 58 29 29 0 0 12 46 a 0 0 58

Missouri

b

144 30 114 0 144 0 0 144 0 0

Montana 50 25 25 0 41 0 9 28 0 22

Nebraska 28 24 4 0 26 0 2 28 0 0 

Nevada 12 9 3 0 c 11 0 1 12 0 0 

New Hampshire 29 11 15 3 c 29 0 0 29 0 0

New Jersey 88 72 16 0 88 0 0 88 0 0 
Appendix II: Extent of Compliance with DSH 

Audit Requirements in 2010 DSH Audits

Page 41 GAO-13-48 Oversight of Medicaid Supplemental Payments

DSH payments do not exceed 

hospital uncompensated care 

costs

Hospital uncompensated 

care costs are accurately 

calculated

Any Medicaid surplus is 

applied against uninsured 

uncompensated care costs

State 

Total number 

of hospitals Met Not met

Could not 

be verified Met Not met

Could not 

be verified Met Not met

Could not 

be verified

New Mexico 23 9 14 0 23 0 0 23 0 0

New York 222 167 32 23 171 28 23 222 0 0 

North Carolina 110 103 7 0 110 0 0 110 0 0 

North Dakota 7 4 3 0 4 0 3 7 0 0 

Ohio 176 168 8 0 176 0 0 176 0 0 

Oklahoma 65 50 6 9 0 65 0 49 3 13

Oregon 9 8 1 0 9 0 0 9 0 0

Pennsylvania 176 164 12 0 0 10 166 0 1 175

Rhode Island 14 10 4 0 14 0 0 14 0 0 

South Carolina 61 40 19c 2 58 0 3 58 0 3 

South Dakota 20 16 4 0 c 0 20 0 0 0 20

Texas 181 125 39 17 c 0 22 159 a 0 0 181

Utah

b

34 21 13 0 34 0 0 34 0 0

Vermont 14 0 1 13 d 0 0 14 0 14 0 

Virginia 21 19 2 0 21 0 0 21 0 0 

Washington 72 52 13 7 c 3 16 53 a 0 0 72

West Virginia

b

57 40 17 0 57 0 0 57 0 0

Wisconsin 26 26 0 0 26 0 0 26 0 0 

Wyoming 5 3 2 0 5 0 0 5 0 0

Total 2,953 2,008 d 717 228 1,752 206 995 1,851 18 1,084

Source: GAO analysis of Centers for Medicare & Medicaid Services (CMS) data.

Notes: Data are from 2010 DSH audits of the 2007 DSH payments. Massachusetts and Tennessee 

did not make DSH payments in 2007 and did not submit DSH audits. We analyzed the audit findings, 

and for each state we determined the extent of compliance with the audit requirements by identifying 

the number of hospitals (1) whose DSH payments complied with the audit requirement—categorized 

as “Met”; (2) whose DSH payments did not comply with the audit requirement—categorized as “Not 

met”; and (3) for which compliance of their DSH payments with the audit requirement could not be 

determined—categorized as “Could not be verified.” DSH payments made between 2005 and 2010 

are subject to a transition period during which CMS would not take action against states based on 

findings of noncompliance with federal DSH requirements identified in the audits.

a

In these states, the number of hospitals with payments found noncompliant was based on auditors’ 

review of a case study of hospitals.

b

The DSH audit findings of these states’ compliance with this requirement noted that because the 

Medicaid State Plans of these states were silent about the inclusion of all Medicaid payments (i.e., 

out-of-state, dual eligible, and supplemental payments) in the calculation of hospitals’ uncompensated 

care costs, not all Medicaid payment surpluses were applied against the uninsured uncompensated 

care costs. As a result, we could not determine the specific number of hospitals whose DSH 

payments were compliant or noncompliant with this requirement.
Appendix II: Extent of Compliance with DSH 

Audit Requirements in 2010 DSH Audits

Page 42 GAO-13-48 Oversight of Medicaid Supplemental Payments

c

Of the number of hospitals in each of these states whose DSH payments exceeded the hospitals’ 

uncompensated care costs, the following numbers of hospitals in each state were not qualified to 

receive DSH payments and thus exceeded their uncompensated care costs by default: one in 

Nevada, two in New Hampshire, one in South Carolina, four in South Dakota, three in Texas, one in 

Vermont, and one in Washington.

d

The total number of hospitals represents the number of hospitals whose DSH payments we 

reviewed. This number is less than the total number of hospitals included in submitted DSH audits 

because we removed from our analysis hospitals that were closed prior to 2007, were out-of-state 

(not located in the state for which the audit was conducted), had no reported DSH payments (either 

$0 was reported or no information was provided), and appeared twice in a DSH audit.
Appendix II: Extent of Compliance with DSH 

Audit Requirements in 2010 DSH Audits

Page 43 GAO-13-48 Oversight of Medicaid Supplemental Payments

Table 5: Extent of Compliance with Federal DSH Audit Requirements, by State, Audit Requirement, and Number of Hospitals

as Reported in 2010 Disproportionate Share Hospital (DSH) Audits (part 2)

Qualified hospitals are 

allowed to retain their 

DSH payments

State has records of all 

payments and expenditures 

related to Medicaid and 

uninsured patients

State documented its 

method for calculating 

uncompensated costs

State 

Total number 

of hospitals Met Not met

Could not 

be verified Met Not met

Could not 

be verified Met Not met

Could not 

be verified

Alabama 98 66 3 29 a 64 34 0 98 0 0 

Alaska 4 4 0 0 4 0 0 4 0 0 

Arizona 40 40 0 0 40 0 0 40 0 0 

Arkansas 4 4 0 0 4 0 0 4 0 0 

California 141 141 0 0 141 0 0 141 0 0 

Colorado 47 0 11 36 a 0 0 47 47 0 0 

Connecticut 35 0 0 35 0 0 35 35 0 0 

Delaware 1 1 0 0 1 0 0 1 0 0 

District of Columbia 10 6 0 4 10 0 0 10 0 0 

Florida 63 63 0 0 63 0 0 63 0 0 

Georgia 109 109 0 0 109 0 0 109 0 0 

Hawaii 15 15 0 0 15 0 0 15 0 0 

Idaho 35 32 0 3 35 0 0 35 0 0 

Illinois 42 42 0 0 41 0 1 41 0 1 

Indiana 66 66 0 0 66 0 0 66 0 0 

Iowa 12 0 0 12 0 0 12 0 0 12

Kansas 45 45 0 0 45 0 0 45 0 0 

Kentucky 108 108 0 0 108 0 0 108 0 0 

Louisiana 118 118 0 0 118 0 0 118 0 0 

Maine 2 2 0 0 0 2 0 2 0 0 

Maryland 20 20 0 0 20 0 0 20 0 0 

Michigan 130 126 2 2 a 130 0 0 130 0 0 

Minnesota 106 38 0 68 0 45 61 101 5 0 

Mississippi 58 58 0 0 56 2 0 58 0 0 

Missouri 144 144 0 0 144 0 0 144 0 0 

Montana 50 39 0 11 50 0 0 50 0 0 

Nebraska 28 28 0 0 28 0 0 28 0 0 

Nevada 12 11 1 0 a 12 0 0 12 0 0 

New Hampshire 29 24 2 3 a 29 0 0 29 0 0 

New Jersey 88 70 18 0 88 0 0 88 0 0 

New Mexico 23 23 0 0 23 0 0 23 0 0 
Appendix II: Extent of Compliance with DSH 

Audit Requirements in 2010 DSH Audits

Page 44 GAO-13-48 Oversight of Medicaid Supplemental Payments

Qualified hospitals are 

allowed to retain their 

DSH payments

State has records of all 

payments and expenditures 

related to Medicaid and 

uninsured patients

State documented its 

method for calculating 

uncompensated costs

State 

Total number 

of hospitals Met Not met

Could not 

be verified Met Not met

Could not 

be verified Met Not met

Could not 

be verified

New York 222 194 5 23 a 100 23 99 0 222 0 

North Carolina 110 110 0 0 110 0 0 110 0 0 

North Dakota 7 5 0 2 7 0 0 7 0 0 

Ohio 176 176 0 0 176 0 0 176 0 0 

Oklahoma 65 52 4 9 a 0 0 65 65 0 0 

Oregon 9 7 1 1 a 9 0 0 9 0 0 

Pennsylvania 176 176 0 0 176 0 0 176 0 0 

Rhode Island 14 14 0 0 14 0 0 14 0 0 

South Carolina 61 58 1 2 a 61 0 0 61 0 0 

South Dakota 20 14 4 2 a 0 0 20 0 20 0 

Texas 181 170 3 8 a 164 0 17 181 0 0 

Utah 34 34 0 0 34 0 0 34 0 0 

Vermont 14 13 1 0 a 0 0 14 0 14 0 

Virginia 21 20 1 0 a 21 0 0 21 0 0 

Washington 72 64 1 7 a 66 0 6 72 0 0 

West Virginia 57 57 0 0 57 0 0 57 0 0 

Wisconsin 26 26 0 0 26 0 0 26 0 0 

Wyoming 5 5 0 0 5 0 0 5 0 0 

Total 2,953 2,638 b 58 257 c 2,470 106 377 2,679 261 13

Source: GAO analysis of Centers for Medicare & Medicaid Services (CMS) data.

Notes: Data are from 2010 DSH audits of the 2007 DSH payments. Massachusetts and Tennessee 

did not make DSH payments in 2007 and did not submit DSH audits. We analyzed the audit findings, 

and for each state we determined the extent of compliance with the audit requirements by identifying 

the number of hospitals (1) whose DSH payments complied with the audit requirement—categorized 

as “Met”; (2) whose DSH payments did not comply with the audit requirement—categorized as “Not 

met”; and (3) for which compliance of their DSH payments with the audit requirement could not be 

determined—categorized as “Could not be verified.” DSH payments made between 2005 and 2010 

are subject to a transition period during which CMS would not take action against states based on 

findings of noncompliance with federal DSH requirements identified in the audits.

a

DSH payments to these hospitals were categorized as noncompliant because the hospitals were not 

qualified to receive DSH payments.

b

The total number of hospitals represents the number of hospitals whose DSH payments we 

reviewed. This number is less than the total number of hospitals included in submitted DSH audits 

because we removed from our analysis hospitals that were closed prior to 2007, were out-of-state 

(not located in the state for which the audit was conducted), had no reported DSH payments (either 

$0 was reported or no information was provided), and appeared twice in a DSH audit.

c

DSH payments to 18 of these hospitals were categorized as noncompliant because the hospitals did 

not retain their DSH payments, while DSH payments to the remaining 40 hospitals were categorized 

as noncompliant because the hospitals were not qualified to receive DSH payments.
Appendix III: Overview of the 17 Data Elements 

on DSH Reports

Page 45 GAO-13-48 Oversight of Medicaid Supplemental Payments

The Medicare Prescription Drug, Improvement, and Modernization Act of 

2003 directed the Secretary of Health and Human Services to require 

states to submit annual independent certified audits and annual reports 

on their disproportionate share hospital (DSH) payments.1 Congress 

stipulated that the annual DSH reports identify each hospital that received 

a DSH payment in the prior fiscal year, the amount of the DSH payment, 

and such other information that the Secretary determines is necessary to 

ensure the appropriateness of state DSH payments. In 2008, the final rule 

implementing the 2003 DSH audit and report requirements identified the 

following 17 pieces of information in table 6 that states are required to 

include on their annual DSH reports for each DSH hospital.2

 

1

Pub. L. No. 108-173, § 1001(d), 117 Stat. 2066, 2430-2431 (2003) (adding section 

1923(j) to the Social Security Act) (codified, as amended, at 42 U.S.C. § 1395r-4(j)). 

2

Medicaid Program; Disproportionate Share Hospital Payments, 73 Fed. Reg. 77904 

(Dec. 19, 2008) (codified at 42 C.F.R. § 447.299(c)); Medicaid Program; Disproportionate 

Share Hospital Payments; Correcting Amendment, 74 Fed. Reg. 18656 (Apr. 24, 2009).

Appendix III: Overview of the 17 Data 

Elements on DSH Reports
Appendix III: Overview of the 17 Data Elements 

on DSH Reports

Page 46 GAO-13-48 Oversight of Medicaid Supplemental Payments

Table 6: Data Elements on Disproportionate Share Hospital (DSH) Reports

Data element Description

1. Hospital name The name of the hospitals that received DSH payments from the state, 

identifying facilities that are institutes for mental disease and facilities that 

are located out of state.

2. State-estimated hospital-specific DSH limit The estimate of eligible uncompensated care for the hospital receiving a 

DSH payment for the year under audit based on the state’s methodology for 

determining such limit.

3. Medicaid inpatient utilization rate The hospital’s Medicaid inpatient utilization rate as defined by federal law, 

unless the state uses alternative qualification criteria described in element 

(5) of this table.

4. Low-income utilization rate The hospital’s low-income utilization rate as defined by federal law, unless 

the state uses alternative qualification criteria described in element (5) of 

this table.

5. State-defined DSH qualification criteria If the state uses an alternate broader DSH qualification methodology as 

authorized by federal law, it must provide the value of the statistic and the 

methodology used to determine that statistic.

6. Inpatient and outpatient Medicaid fee-for-service 

rate payments

The total annual amount of Medicaid fee-for-service payments made to the 

hospital for inpatient and outpatient services furnished to Medicaid-eligible 

individuals, but excluding DSH payments or non-DSH supplemental 

payments.

7. Inpatient and outpatient Medicaid managed care 

organization payments

The total annual amount paid to the hospital by Medicaid managed care 

organizations for inpatient hospital and outpatient hospital services furnished 

to Medicaid-eligible individuals.

8. Non-DSH supplemental inpatient and outpatient 

Medicaid payments

The total annual amount of non-DSH supplemental Medicaid payments 

made to the hospital under the state plan. These amounts do not include 

DSH payments, regular Medicaid fee-for-service rate payments, and 

Medicaid managed care organization payments.

9. Total Medicaid inpatient and outpatient payments Sum of inpatient and outpatient Medicaid fee-for-service, managed care 

organization, and non-DSH supplemental payments (sum of elements (6), 

(7), and (8) in this table). 

10. Total cost of care—Medicaid inpatient and 

outpatient services

The total annual costs incurred by each hospital for providing inpatient and 

outpatient hospital services to Medicaid-eligible individuals.

11. Total Medicaid uncompensated care cost The total amount of uncompensated care for providing Medicaid inpatient 

and outpatient services. That is, total cost of inpatient and outpatient 

Medicaid services minus total Medicaid inpatient and outpatient payments 

(element (10) minus element (9) in this table). The uncompensated care 

costs of providing Medicaid physician services cannot be included in this 

amount.

12. Uninsured inpatient and outpatient payments Total annual payments received by the hospital by or on behalf of individuals 

with no source of third-party coverage for inpatient and outpatient hospital 

services they receive. This amount does not include payments made by a 

state or units of local government for services furnished to indigent patients.

13. Total applicable Section 1011 payments Federal Section 1011 payments for uncompensated inpatient and outpatient 

hospital services provided to Section 1011-eligible aliens with no source of 

third-party coverage for the inpatient and outpatient hospital services they 

receive.

a
Appendix III: Overview of the 17 Data Elements 

on DSH Reports

Page 47 GAO-13-48 Oversight of Medicaid Supplemental Payments

Data element Description

14. Total inpatient and outpatient uninsured cost of 

care 

The total costs incurred for furnishing inpatient and outpatient hospital 

services to individuals with no source of third-party coverage for the hospital 

services they receive.

15. Total inpatient and outpatient uninsured 

uncompensated cost of care

Total annual amount of uncompensated inpatient and outpatient care for 

furnishing inpatient hospital and outpatient hospital services to individuals 

with no source of third-party coverage for the hospital services they receive. 

The amount should be the result of the total inpatient and outpatient cost of 

providing hospital services to these individuals minus total payments 

received by or on behalf of these individuals (element (14) minus the sum of 

elements (12) and (13) in this table). The uncompensated care costs of 

providing physician services cannot be included. The uninsured 

uncompensated amount also cannot include unpaid copays or deductibles 

for individuals with third-party coverage for the hospital services they receive 

or any other unreimbursed costs associated with hospital services provided 

to individuals with those services in their third-party coverage benefit 

package. Moreover, the uncompensated care costs also cannot include bad 

debt or payer discounts related to services furnished to individuals who have 

health insurance or other third-party payer.

16. Total annual uncompensated care cost The total annual uncompensated care cost equals the total cost of care for 

furnishing inpatient hospital and outpatient hospital services to Medicaideligible individuals and to individuals with no source of third-party coverage 

for the hospital services they receive less the sum of regular Medicaid feefor-service rate payments, Medicaid managed care organization payments, 

non-DSH supplemental payments, uninsured payments, and Section 1011 

payments for inpatient and outpatient hospital services (the sum of elements 

(9), (12), and (13) subtracted from the sum of elements (10) and (14) in this 

table).

17. Total DSH payments received The total amount of DSH payments made to the hospital during the 

Medicaid plan year.

Source: GAO summary of regulations.

Notes: The source regulations are Medicaid Program; Disproportionate Share Hospital Payments, 

73 Fed. Reg. 77904 (Dec. 19, 2008) (codified at 42 C.F.R. § 447.299(c)); Medicaid Program; 

Disproportionate Share Hospital Payments; Correcting Amendment, 74 Fed. Reg. 18656 

(Apr. 24, 2009).

a

Section 1011 of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 

provided $250 million per year for fiscal years 2005 to 2008 for payments to eligible providers for 

emergency health services provided to undocumented aliens and other specified aliens. Pub. L. 

No. 108-173, § 1011, 117 Stat. 2066, 2432-2435 (2003).
Appendix IV: Percentage of DSH Payments and 

Uncompensated Care for DSH Hospitals in 

2010 DSH Reports

Page 48 GAO-13-48 Oversight of Medicaid Supplemental Payments

Table 7 presents the number of hospitals and the proportion of 

disproportionate share hospital (DSH) payments and uncompensated 

care attributable to the 10 percent of DSH hospitals that received the 

largest DSH payments in the state and to the 90 percent of DSH hospitals 

that received the smallest DSH payments in each state, based on states’ 

2010 DSH reports of 2007 payments.

Appendix IV: Percentage of DSH Payments 

and Uncompensated Care for DSH Hospitals 

in 2010 DSH Reports
Appendix IV: Percentage of DSH Payments and 

Uncompensated Care for DSH Hospitals in 

2010 DSH Reports

Page 49 GAO-13-48 Oversight of Medicaid Supplemental Payments

Table 7: Number of Hospitals, Percentage of Disproportionate Share Hospital (DSH) Payments, and Percentage of 

Uncompensated Care for the 10 Percent of DSH Hospitals Receiving the Largest DSH Payments and the 90 Percent Receiving 

the Smallest DSH Payments, by State

The 10 percent of DSH hospitals with largest 

DSH payments

The 90 percent of DSH hospitals with smallest 

DSH payments

State 

Number of 

hospitals

Percentage of 

DSH payments

Percentage of 

uncompensated 

carea Number of 

hospitals

Percentage of 

DSH payments

Percentage of 

uncompensated 

care

Alabama

a

6 72.5% 81.7% 48 27.5% 18.3%

Alaska 1 81.2 71.6 1 18.8 28.4

Arizona 4 87.1 27.1 33 12.9 72.9

California 9 b 44.0 34.1 77 56.0 65.9

Colorado 2 82.6 64.8 10 17.4 35.2

Connecticut 4 46.5 49.8 31 53.5 50.2

District of Columbia 1 44.8 (2.5)c 4 55.2 102.5

Florida

c

6 77.4 (2.6)c 48 22.6 102.6

Georgia

c

10 58.0 49.8 88 42.0 50.2

Hawaii 1 61.7 54.3 8 38.3 45.7

Idaho 3 51.7 61.9 27 48.3 38.1

Illinois 1 30.4 11.6 5 69.6 88.4

Indiana 6 66.8 46.3 50 33.2 53.7

Kansas 3 65.0 46.4 25 35.0 53.6

Kentucky 7 70.1 39.7 57 29.9 60.3

Louisiana 9 60.3 49.6 77 39.7 50.4

Maine 1 57.1 57.1 1 42.9 42.9

Maryland 2 29.2 36.9 16 70.8 63.1

Michigan 1 90.9 39.5 1 9.1 60.5

Minnesota 5 70.6 34.5 40 29.4 65.5

Missouri 10 53.1 92.5 90 46.9 7.5

Montana 3 42.5 79.5 20 57.5 20.5

Nebraska 2 62.3 27.1 18 37.7 72.9

Nevada 1 88.1 75.8 9 11.9 24.2

New Hampshire 3 44.8 32.0 22 55.2 68.0

New Jersey 5 45.7 33.0 45 54.3 67.0

New Mexico 1 94.1 128.5d 8 5.9 (28.5)

New York

d

19 67.3 53.1 168 32.7 46.9

North Carolina 10 74.7 37.9 87 25.3 62.1

North Dakota 1 69.9 78.3 2 30.1 21.7

Ohio 18 47.2 40.8 157 52.8 59.2
Appendix IV: Percentage of DSH Payments and 

Uncompensated Care for DSH Hospitals in 

2010 DSH Reports

Page 50 GAO-13-48 Oversight of Medicaid Supplemental Payments

The 10 percent of DSH hospitals with largest 

DSH payments

The 90 percent of DSH hospitals with smallest 

DSH payments

State 

Number of 

hospitals

Percentage of 

DSH payments

Percentage of 

uncompensated 

carea Number of 

hospitals

Percentage of 

DSH payments

Percentage of 

uncompensated 

care

Oklahoma

a

5 76.8 40.3 43 23.2 59.7

Oregon 1 97.0 45.6 5 3.0 54.4

Rhode Island 2 46.7 63.0 10 53.3 37.0

South Carolina 6 40.7 41.6 52 59.3 58.4

Texas 15 66.9 33.0 130 33.1 67.0

Utah 4 86.4 39.4 27 13.6 60.6

Vermont 2 55.8 49.3 12 44.2 50.7

Virginia 2 77.7 43.6 12 22.3 56.4

Washington 7 78.2 42.0 56 21.8 58.0

West Virginia 6 61.0 42.2 49 39.0 57.8

Wyoming 1 47.8 54.7 2 52.2 45.3

Source: GAO analysis of Centers for Medicare & Medicaid Services data.

Notes: Data are from 2010 DSH reports of 2007 DSH payments. For the purpose of this report, we 

consider the hospitals receiving the largest DSH payments in each state to be the 10 percent of total 

DSH hospitals in the state that received the largest DSH payments. When calculating the number of 

DSH hospitals representing 10 percent, we rounded up to the nearest whole number. Massachusetts 

and Tennessee did not make DSH payments in 2007 and did not submit DSH reports. Arkansas, 

Delaware, Iowa, Mississippi, Pennsylvania, South Dakota, and Wisconsin did not report the 

necessary data to analyze DSH payments and uncompensated care.

a

Figures in parentheses represent a negative number.

b

In analyzing uncompensated care costs in California, we did not adjust for public hospitals 

authorized to receive DSH payments of up to 175 percent of their uncompensated care. 

c

In the District of Columbia and Florida, the 10 percent of total DSH hospitals in the state that 

received the largest DSH payments did not in the aggregate have uncompensated care costs. 

Rather, 1 hospital in the District of Columbia and 6 hospitals in Florida in the aggregate had surpluses 

because payments exceeded uncompensated care costs. Their surpluses reduced the overall 

uncompensated care costs for DSH hospitals in their states and therefore contributed a negative 

amount to overall uncompensated care costs. For example, in Florida the 6 hospitals had a 

$13 million surplus, which reduced the overall uncompensated care costs for DSH hospitals in the 

state from $519 million to $506 million. These hospitals contributed negative 2.6 percent to overall 

uncompensated care costs for DSH hospitals in the state. In contrast, the 90 percent of total DSH 

hospitals (48 hospitals) in the state that received the smallest DSH payments provided $519 million in 

uncompensated care costs, or 102.6 percent of the $506 million in total uncompensated care costs in 

the state.

d

In New Mexico, the 90 percent of total DSH hospitals in the state that received the smallest DSH 

payments did not in the aggregate have uncompensated care costs. Rather, these eight hospitals in 

the aggregate had a surplus because payments exceeded uncompensated care costs. Their surplus 

reduced the overall uncompensated care costs for DSH hospitals in the state and therefore 

contributed a negative amount to overall uncompensated care costs. The hospital with the largest 

DSH payment in New Mexico had a greater amount of uncompensated care costs than all hospitals’ 

combined uncompensated care costs and therefore contributed more than 100 percent of overall 

uncompensated care costs.
Appendix V: DSH Hospitals’ Non-DSH 

Payments and Medicaid Uncompensated Care 

Costs in 2010 DSH Reports

Page 51 GAO-13-48 Oversight of Medicaid Supplemental Payments

Table 8 presents information about the number of hospitals and the 

percentage of non-disproportionate share hospital (DSH) supplemental 

payments and Medicaid uncompensated care costs attributable to the 

10 percent of DSH hospitals that received the largest non-DSH payments 

in the state and the 90 percent of DSH hospitals that received the 

smallest non-DSH payments in each state, based on states’ 2010 DSH 

reports of 2007 DSH payments.

Appendix V: DSH Hospitals’ Non-DSH 

Payments and Medicaid Uncompensated 

Care Costs in 2010 DSH Reports
Appendix V: DSH Hospitals’ Non-DSH 

Payments and Medicaid Uncompensated Care 

Costs in 2010 DSH Reports

Page 52 GAO-13-48 Oversight of Medicaid Supplemental Payments

Table 8: Number of Hospitals, Percentage of Non-Disproportionate Share Hospital (DSH) Supplemental Payments, and 

Percentage of Medicaid Uncompensated Care Costs for the 10 Percent of DSH Hospitals Receiving the Largest Non-DSH 

Payments and the 90 Percent of DSH Hospitals Receiving the Smallest Non-DSH Supplemental Payments, by State

The 10 percent of DSH hospitals with largest 

non-DSH payments

The 90 percent of DSH hospitals with smallest 

non-DSH payments

State 

Number of 

hospitals

Percentage of 

non-DSH 

payments 

received

Percentage of 

Medicaid 

uncompensated

costs a a Number of 

hospitals

Percentage of 

non-DSH 

payments 

received

Percentage of 

Medicaid 

uncompensated 

costs a

Alabama

a

7 78.8% 46.1% 57 21.2% 53.9%

Alaska 1 100.0 9.2 3 0.0 90.8

Arizona 5 72.5 35.3 38 27.5 64.7

Arkansas 1 93.9 74.1 3 6.1 25.9

California 15 52.0 39.2 128 48.0 60.8

Colorado 4 68.9 33.6 28 31.1 66.4

Connecticut 4 90.0 8.4 31 10.0 91.6

District of Columbia 1 (22.3) 0.4 b 7 122.3 99.6 b

Florida 7 76.4 35.8 54 23.6 64.2

Georgia 11 60.5 48.8 98 39.5 51.2

Hawaii 1 64.6 55.1 8 35.4 44.9

Idaho 4 62.1 9.0 27 37.9 91.0

Illinois 4 34.1 25.1 35 65.9 74.9

Indiana 7 57.5 41.5 59 42.5 58.5

Iowa 1 78.4 62.7 9 21.6 37.3

Kansas 5 80.9 63.9 40 19.1 36.1

Kentucky 11 99.8 56.4 97 0.2 43.6

Louisiana 12 100.0 15.3 106 0.0 84.7

Maryland 2 71.3 (250.0)c 18 28.7 350.0

Michigan

c

13 62.7 46.5 113 37.3 53.5

Minnesota 5 80.1 43.9 40 19.9 56.1

Mississippi 6 50.0 22.7 50 50.0 77.3

Missouri 15 67.4 65.7 128 32.6 34.3

Montana 4 55.6 65.2 35 44.4 34.8

Nebraska 3 100.0 36.6 24 0.0 63.4

Nevada 2 97.9 73.7 9 2.1 26.3

New Hampshire 3 135.1 16.4 d 26 (35.1) 83.6 d

New Jersey 9 63.0 33.9 81 37.0 66.1

New Mexico 3 77.1 192.1e 20 22.9 (92.1)

New York

e

19 72.6 29.3 170 27.4 70.7
Appendix V: DSH Hospitals’ Non-DSH 

Payments and Medicaid Uncompensated Care 

Costs in 2010 DSH Reports

Page 53 GAO-13-48 Oversight of Medicaid Supplemental Payments

The 10 percent of DSH hospitals with largest 

non-DSH payments

The 90 percent of DSH hospitals with smallest 

non-DSH payments

State 

Number of 

hospitals

Percentage of 

non-DSH 

payments 

received

Percentage of 

Medicaid 

uncompensated

costs a a Number of 

hospitals

Percentage of 

non-DSH 

payments 

received

Percentage of 

Medicaid 

uncompensated 

costs a

North Carolina

a

11 59.6 51.6 99 40.4 48.4

Ohio 18 98.8 34.2 158 1.2 65.8

Oklahoma 6 83.3 45.2 46 16.7 54.8

Oregon 1 104.1 61.8 d 8 (4.1) 38.2 d

Pennsylvania 19 82.7 34.2 169 17.3 65.8

Rhode Island 2 322.9 9.1 d 11 (222.9) 90.9 d

South Carolina 6 46.5 41.8 54 53.5 58.2

Texas 17 85.3 53.5 144 14.7 46.5

Utah 4 98.4 446.6e 29 1.6 (346.6)

Virginia

e

2 81.3 35.3 13 18.7 64.7

Washington 7 121.3 41.8 d 56 (21.3) 58.2 d

West Virginia 6 72.2 62.1 51 27.8 37.9

Wyoming 1 85.5 72.1 4 14.5 27.9

Source: GAO analysis of Centers for Medicare & Medicaid Services data.

Notes: Data are from 2010 DSH reports of 2007 DSH payments. For the purpose of this report, we 

consider the hospitals receiving the largest non-DSH supplemental payments in each state to be the 

10 percent of total DSH hospitals in the state that received the largest non-DSH supplemental 

payments. When calculating the number of DSH hospitals representing 10 percent, we rounded up to 

the nearest whole number. Massachusetts and Tennessee did not make DSH payments in 2007 and 

did not submit DSH reports. Delaware, Maine, North Dakota, Vermont, and Wisconsin did not report 

non-DSH supplemental payments or did not make non-DSH supplemental payments in 2007. One 

state, South Dakota, was excluded from our analysis because we could not determine the reliability of 

its data. For our analysis, uncompensated Medicaid costs are the expenses incurred in providing 

Medicaid-covered services to Medicaid beneficiaries minus regular Medicaid payments the hospitals 

received.

a

Figures in parentheses represent a negative number.

b

Because of adjustments for non-DSH payments made, there were no aggregate non-DSH 

supplemental payments for the District of Columbia in 2007.

c

Maryland did not have uncompensated Medicaid costs for all hospitals. For all hospitals in the state, 

payments exceeded costs by about $7.8 million, while for two hospitals in the top 10 percent costs 

exceeded payments by about $19.5 million. When calculating the two hospitals’ share of the state’s 

uncompensated Medicaid costs, the statewide surplus is treated as a negative uncompensated 

Medicaid cost. As a result, the two hospitals’ share appears as a negative number.

d

In New Hampshire, Oregon, Rhode Island, and Washington, the 90 percent of total DSH hospitals 

that received the smallest non-DSH supplemental payments include hospitals with payment 

adjustments that reduced non-DSH payments already made. This resulted in an overall reduction in 

non-DSH supplemental payments for this group of hospitals.

e

In New Mexico and Utah, the aggregate uncompensated Medicaid costs of the top 10 percent of 

hospitals in each state were greater than the state’s overall uncompensated Medicaid costs, resulting 

in these hospitals having more than 100 percent of the state’s uncompensated Medicaid costs. The 

statewide uncompensated Medicaid costs are lower than those of the top 10 percent of hospitals, 

because some hospitals in the state had a Medicaid surplus, which reduces the uncompensated 

Medicaid costs of other hospitals when calculating the statewide total.
Appendix VI: DSH Payments and 

Uncompensated Care Costs for Selected DSH 

Hospitals in 2010 DSH Reports

Page 54 GAO-13-48 Oversight of Medicaid Supplemental Payments

This appendix provides the results of our analysis of total regular 

Medicaid, disproportionate share hospital (DSH), and non-DSH 

supplemental payments in states’ 2010 DSH reports compared to 

hospitals’ total cost of care for Medicaid and uninsured patients for certain 

hospitals. We conducted this analysis to illustrate the extent to which 

DSH reports can provide the Centers for Medicare & Medicaid Services 

(CMS) with information about how supplemental payments, in particular 

non-DSH supplemental payments, relate to regular Medicaid payments, 

DSH payments, and the costs of providing care to Medicaid and 

uninsured patients. Our analysis is based on the 2010 DSH reports of 

2007 DSH payments, which were subject to a transition period, during 

which CMS would not take action against states based on findings of 

noncompliance with federal DSH requirements. During the transition 

period, states are directed to use findings from DSH audits and reports to 

make any necessary changes in their DSH payments. Actions in 

response to noncompliance begin with payments made in 2011, which 

must be submitted to CMS in 2014. We identified 705 DSH hospitals that 

received total regular Medicaid and non-DSH supplemental payments in 

excess of Medicaid costs.1

 

1

Of these 705 DSH hospitals, 505 received both regular Medicaid and non-DSH 

payments, and 200 received only regular Medicaid payments.

For these hospitals, we compared DSH 

payments to uncompensated care costs—the costs incurred in providing 

These findings are based on CMS’s definition of eligible uninsured costs under the 2008 

final rule that was in place for the 2010 audits. In January 2012, however, CMS published 

a proposed regulation to clarify which individuals are considered uninsured for the 

purposes of calculating hospitals’ uncompensated care costs. The rule proposes that the

costs of services provided to individuals whose health insurance coverage has been 

exhausted or did not cover the specific service provided would be considered uninsured 

costs when calculating uncompensated care costs. Under the 2008 final rule, these costs 

were not considered eligible uninsured costs. The new definition of eligible uninsured 

costs may affect the calculation of hospitals’ uncompensated care costs and 

determinations of whether DSH payments exceed hospitals’ uncompensated care costs. 

See 77 Fed. Reg. 2500 (Jan. 18, 2012).

In their annual DSH reports, states are required to report three categories of Medicaid 

payments that hospitals may have received: fee-for-service payments, managed care 

organization payments, and non-DSH supplemental payments. For the purpose of our 

report, we combined the fee-for-service payment and managed care organization payment 

amounts and refer to them as total regular Medicaid payments. States are also required to 

report the total Medicaid payments for each hospital, that is, the sum of the three 

categories of Medicaid payments hospitals may have received. For the 2010 reports, 

however, in some states this total also included other payments, such as payments a 

hospital received from another state Medicaid program and payments received from 

Medicare for Medicaid individuals who were eligible for both Medicaid and Medicare.

Appendix VI: DSH Payments and 

Uncompensated Care Costs for Selected DSH 

Hospitals in 2010 DSH Reports
Appendix VI: DSH Payments and 

Uncompensated Care Costs for Selected DSH 

Hospitals in 2010 DSH Reports

Page 55 GAO-13-48 Oversight of Medicaid Supplemental Payments

services during the year to Medicaid and uninsured patients minus any 

regular Medicaid, non-DSH supplemental, and uninsured patient 

payments made to the hospital for those services. When we compared 

DSH payments to uncompensated care costs for these hospitals, we 

found that 255 of the hospitals received DSH payments in excess of 

uncompensated care costs.2

For the 118 hospitals that did not have uncompensated care costs and, 

therefore, did not warrant receiving a DSH payment, total payments 

exceeded total costs of care by about $1 billion. We found that total 

payments were about $5.1 billion,

Of the 255 hospitals, 118 did not have 

uncompensated care costs—that is, total regular Medicaid, non-DSH 

payments, and uninsured patient payments exceeded total costs for 

Medicaid and uninsured patients—and should not have received a DSH 

payment, while the remaining 137 hospitals had uncompensated care 

costs but received DSH payments in excess of these costs.

3

 

2

Of the remaining 450 hospitals, 212 did not have DSH payments in excess of 

uncompensated care costs, and 238 did not report the data necessary to analyze DSH 

payments and uncompensated care costs. 

while these hospitals’ Medicaid and 

uninsured care costs were about $4.1 billion. (See fig. 4 and table 9 for 

these payments and costs.)

3

The payments consisted of the following: over $3.4 billion of regular Medicaid payments, 

nearly $1.2 billion of non-DSH supplemental payments, and about $439 million of DSH 

payments. Total payments also include about $107 million in payments made by or on 

behalf of uninsured patients.
Appendix VI: DSH Payments and 

Uncompensated Care Costs for Selected DSH 

Hospitals in 2010 DSH Reports

Page 56 GAO-13-48 Oversight of Medicaid Supplemental Payments

Figure 4: Medicaid and Uninsured Patient Payments and Costs for Disproportionate 

Share Hospital (DSH) Hospitals That Did Not Have Uncompensated Care Costs

Note: Totals for 118 hospitals that had no uncompensated care costs and for which regular Medicaid 

and non-DSH supplemental payments exceeded Medicaid costs.
Appendix VI: DSH Payments and 

Uncompensated Care Costs for Selected DSH 

Hospitals in 2010 DSH Reports

Page 57 GAO-13-48 Oversight of Medicaid Supplemental Payments

Table 9: Medicaid and Uninsured Patient Payments and Costs for Disproportionate Share Hospital (DSH) Hospitals That Had No 

Uncompensated Care Costs and Received a DSH Payment, by State

Costs (dollars in thousands) Payments (dollars in thousands)

State 

Number 

of DSH 

hospitals

Total 

Medicaid 

costs of 

care

Total 

uninsured 

costs of

care Total costs

Total 

regular 

Medicaid 

payments

Total 

non-DSH 

supplemental 

payments

Total 

uninsured 

patient 

payments a

Total DSH 

payments 

received

Total 

payments

Amount by 

which 

payments 

exceed 

costs

Alabama 12 $206,133 $47,304 $253,437 $323,626 $80,361 $6,284 $41,293 $451,564 $198,126

California 7 b 287,490 54,063 341,553 323,669 80,029 12,570 <1 416,268 74,715

District of 

Columbia 1 144,590 4,649 149,239 150,428 0 609 24,583 175,620 26,381

Florida 6 479,144 193,057 672,201 394,642 349,704 29,334 98,697 872,376 200,175

Idaho 1 194 50 244 174 91 2 17 284 40

Indiana 1 2,522 26 2,548 2,865 0 1 298 3,163 614

Kentucky 3 6,242 674 6,916 7,227 105 326 434 8,092 1,176

Maryland 4 177,370 24,404 201,774 204,468 3,203 1,044 13,803 222,517 20,743

Minnesota 1 1,378 566 1,944 1,768 33 694 48 2,543 599

Missouri 31 1,408,130 175,489 1,583,619 1,123,949 563,885 25,454 163,612 1,876,900 293,281

Montana 6 8,241 2,076 10,317 8,356 1,901 815 1,432 12,503 2,186

New 

Hampshire 1 6,204 60 6,264 6,468 68 1 2,284 8,821 2,557

New 

Mexico 6 28,735 14,557 43,292 40,460 15,746 3,225 702 60,133 16,842

New York 5 125,661 13,526 139,187 156,817 1,191 1,515 19,220 178,743 39,557

North

Carolina 2 5,116 389 5,505 6,283 303 138 1 6,725 1,220

Ohio 4 4,954 713 5,667 6,509 0 125 1,522 8,156 2,489

Oklahoma 1 16,511 547 17,058 19,456 45 1,575 309 21,430 4,372 c

Rhode 

Island 1 1,535 596 2,131 2,134 (302) 2,239 2,648 6,718 4,587

South 

Carolina 2 31,058 7,272 38,330 32,662 4,447 2,922 5,458 45,489 7,159

Texas 10 517,775 44,310 562,085 526,283 50,221 12,579 61,060 655,554 93,468 c

Utah 7 35,464 9,922 45,386 47,060 0 3,117 313 50,392 5,006 c

Washington 2 3,376 132 3,508 4,197 (59) 28 231 4,403 894 c

West 

Virginia 3 22,044 3,424 25,468 25,446 382 2,044 1,413 29,284 3,816

Wyoming 1 1,653 769 2,422 1,292 812 339 14 2,456 34

Total 118 $3,521,520 $598,574 $4,120,094 $3,416,236 $1,152,163 $106,980 $439,388 $5,120,134 $1,000,040

Source: GAO analysis of Centers for Medicare & Medicaid Services (CMS) data.
Appendix VI: DSH Payments and 

Uncompensated Care Costs for Selected DSH 

Hospitals in 2010 DSH Reports

Page 58 GAO-13-48 Oversight of Medicaid Supplemental Payments

Notes: Data are from 2010 DSH reports of 2007 DSH payments. Payment and cost amounts may not 

sum to totals because of rounding.

a

Figures in parentheses represent a negative number.

b

California also had two public hospitals that did not have uncompensated care costs and received a 

DSH payment. Since these hospitals were eligible to receive DSH payments up to 175 percent of 

their uncompensated care costs, we removed them from our analysis.

c

In Oklahoma, Texas, Utah, and Washington state, total payments do not equal the sum of total 

regular Medicaid payments, non-DSH supplemental payments, uninsured patient payments, and DSH 

payments because in these states the total payments column includes other payments that were not 

separately reported in these states’ DSH reports. Specifically, in Oklahoma and Texas, CMS officials 

said that these other payments were Medicare payments for Medicaid individuals that are eligible for 

both Medicaid and Medicare. In Utah, these payments were adjustments made to Medicaid payments 

received. In Washington state, these other payments were payments received from another state 

Medicaid program.

For the 137 hospitals that had uncompensated care costs but received a 

DSH payment in excess of those costs, total payments exceeded total 

costs of care by about $664 million. We found that total payments were 

about $6.3 billion,1 while Medicaid and uninsured care costs were about 

$5.7 billion. (See fig. 5 and table 10 for these payments and costs.)

 

1

The payments consisted of the following: nearly $3.1 billion of regular Medicaid 

payments, over $1.2 billion of non-DSH supplemental payments, and almost $1.8 billion of 

DSH payments. Total payments also include about $205 million in payments made by or 

on behalf of uninsured patients.
Appendix VI: DSH Payments and 

Uncompensated Care Costs for Selected DSH 

Hospitals in 2010 DSH Reports

Page 59 GAO-13-48 Oversight of Medicaid Supplemental Payments

Figure 5: Medicaid and Uninsured Patient Payments and Costs for Disproportionate 

Share Hospital (DSH) Hospitals That Had Uncompensated Care Costs

Note: Totals for 137 hospitals that had uncompensated care costs and for which regular Medicaid 

and non-DSH supplemental payments exceeded Medicaid costs.
Appendix VI: DSH Payments and Uncompensated 

Care Costs for Selected DSH Hospitals in 2010 DSH 

Reports

Page 60 GAO-13-48 Oversight of Medicaid Supplemental Payments

Table 10: Medicaid and Uninsured Patient Payments and Costs for Disproportionate Share Hospital (DSH) Hospitals That Had 

Uncompensated Care Costs and Received a DSH Payment in Excess of These Costs, by State

Costs (dollars in thousands) Payments (dollars in thousands)

State 

Number 

of 

hospitals

Total 

Medicaid 

costs of 

care

Total 

uninsured 

costs of 

care

Total 

costs

Total 

regular 

Medicaid 

payments

Total 

non-DSH 

supplemental 

payments

Total 

uninsured 

patient 

payments

Total DSH 

payments 

received

Total 

payments

Amount 

by which 

payments 

exceed 

costs

Alabama 9 $249,062 $99,163 $348,225 $231,517 $41,319 $5,918 $140,781 $419,534 $71,309

Colorado 2 74,102 42,146 116,248 50,978 41,341 0 47,871 140,190 23,942

Florida 6 145,745 136,327 282,072 139,277 97,289 36,865 23,320 296,751 14,679

Georgia 9 58,443 15,475 73,918 59,630 1,797 3,288 13,047 77,763 3,845

Illinois 2 136 7,938 8,074 181 0 66 19,259 19,506 11,432

Indiana 5 130,736 131,393 262,129 90,903 44,682 5,210 144,354 285,148 23,019

Kansas 2 6,533 1,101 7,634 6,344 286 234 1,374 8,238 604

Kentucky 1 5,836 1,138 6,974 6,797 0 0 329 7,126 153

Louisiana 7 212,447 118,919 331,366 215,095 5,062 3,632 158,226 382,015 50,649

Missouri 39 656,970 349,330 1,006,300 531,967 199,098 35,527 390,702 1,157,293 150,993

Montana 4 1,139 968 2,107 1,138 392 398 395 2,323 215

Nevada 1 369 455 824 345 255 32 418 1,058 234 a

New Jersey 3 130,844 87,550 218,394 118,602 34,665 1,938 86,398 241,603 23,208

New York 12 398,218 42,942 441,160 418,510 957 5,005 37,657 462,129 20,969

North Carolina 1 27,297 4,944 32,241 24,904 3,632 631 4,635 33,802 1,560

Ohio 2 44,564 5,708 50,272 47,397 0 312 4,650 52,359 2,087

Rhode Island 1 38,198 3,408 41,606 37,033 1,726 140 7,848 46,746 5,140

South Carolina 8 140,998 49,455 190,453 119,627 25,790 4,520 57,983 207,920 17,466

Texas 14 1,138,527 817,206 1,955,733 746,220 691,512 91,620 612,229 2,181,744 226,011 a

Utah 1 1,236 334 1,570 1,329 0 206 372 1,907 337

Virginia 1 110,779 49,312 160,091 97,968 31,565 6,504 21,749 161,887 1,795 a

Washington 3 112,464 14,392 126,856 108,406 5,670 3,045 19,605 138,963 12,106 a

West Virginia 4 6,665 2,347 9,012 7,076 235 222 3,628 11,161 2,149

Total 137 $3,691,309 $1,981,950 $5,673,259 $3,061,242 $1,227,270 $205,309 $1,796,832 $6,337,164 $663,905

Source: GAO analysis of Centers for Medicare & Medicaid Services (CMS) data.

Notes: Data are from 2010 DSH reports of 2007 DSH payments. Payment and cost amounts may not

sum to totals because of rounding.

a

In Nevada, Texas, Virginia, and Washington state, total payments do not equal the sum of total 

regular Medicaid payments, non-DSH supplemental payments, uninsured patient payments, and DSH 

payments because in these states the total payments column includes other payments that were not 

separately reported in these states’ DSH reports. Specifically, for Texas, CMS officials said that these 

other payments were Medicare payments for Medicaid individuals that are eligible for both Medicaid 

and Medicare. In Nevada, Virginia, and Washington state, these other payments were payments received 

from another state Medicaid program.
Appendix VII: DSH Hospitals with Medicaid 

Payments in Excess of Medicaid Costs in 2010 

DSH Reports

Page 61 GAO-13-48 Oversight of Medicaid Supplemental Payments

Regular and non-disproportionate share hospital (DSH) Medicaid 

payments are not limited to providers’ costs of delivering Medicaid 

services; however, as Medicaid payments they are intended to pay for 

Medicaid-covered services provided to Medicaid beneficiaries and must 

be consistent with efficiency, economy, and quality of care. Table 11 

presents information from interactive figure 3 on the number and 

percentage of DSH hospitals in each state that received total regular 

Medicaid and non-DSH supplemental payments in excess of Medicaid 

costs and the amounts by which payments exceeded costs for DSH 

hospitals that received non-DSH supplemental payments.

Appendix VII: DSH Hospitals with Medicaid 

Payments in Excess of Medicaid Costs in 

2010 DSH Reports
Appendix VII: DSH Hospitals with Medicaid 

Payments in Excess of Medicaid Costs in 2010 

DSH Reports

Page 62 GAO-13-48 Oversight of Medicaid Supplemental Payments

Table 11: Number and Percentage of Disproportionate Share Hospital (DSH) 

Hospitals That Received Non-DSH Supplemental and Regular Medicaid Payments in 

Excess of Medicaid Costs and Amount by Which Payments Exceeded Costs, by 

State 

State 

Number of DSH 

hospitals

Percentage of 

DSH hospitals

Dollar amount by which 

regular Medicaid and 

non-DSH supplemental 

payments exceeded 

Medicaid costs

Alabama 22 34% $204,012,498

Alaska 1 25 182,708

Arizona 1 2 134,246

Arkansas 1 25 2,917,316

California 23 16 148,499,802

Colorado 2 6 18,216,205

Connecticut 0 0 0 

District of Columbia 0 0 0 

Florida 37 61 625,694,383

Georgia 17 16 1,693,135

Hawaii 0 0 0 

Idaho 10 32 561,101

Illinois 29 74 262,185,810

Indiana 9 14 5,994,186

Iowa 4 40 3,412,828

Kansas 7 16 4,291,691

Kentucky 5 5 18,314,308

Louisiana 2 2 4,372,258

Maryland 6 30 53,652,164

Michigan 25 20 34,774,182

Minnesota 9 20 15,700,509

Mississippi 30 54 53,338,361

Missouri 101 71 424,467,105

Montana 23 59 5,598,006

Nebraska 0 0 0 

Nevada 1 9 239,852

New Hampshire 1 3 331,755

New Jersey 9 10 37,682,503

New Mexico 15 65 119,893,213

New York 11 6 45,332,681
Appendix VII: DSH Hospitals with Medicaid 

Payments in Excess of Medicaid Costs in 2010 

DSH Reports

Page 63 GAO-13-48 Oversight of Medicaid Supplemental Payments

State 

Number of DSH 

hospitals

Percentage of 

DSH hospitals

Dollar amount by which 

regular Medicaid and 

non-DSH supplemental 

payments exceeded 

Medicaid costs

North Carolina 8 7 3,387,059

Ohio 2 1 16,128,593

Oklahoma 11 21 27,891,507

Oregon 1 11 25,926

Pennsylvania 6 3 9,375,010

Rhode Island 1 8 560,581

South Carolina 13 22 11,905,483

Texas 35 22 496,527,209

Utah 6 18 45,025,319

Virginia 2 13 34,006,273

Washington 9 14 6,182,632

West Virginia 8 14 5,081,405

Wyoming 2 40 539,407

Total 505 19% $2,748,129,210

Source: GAO analysis of Centers for Medicare & Medicaid Services data.

Notes: Data are from 2010 DSH reports of 2007 DSH payments. Massachusetts and Tennessee did 

not make DSH payments in 2007 and did not submit DSH reports. Delaware, Maine, North Dakota, 

South Dakota, Vermont, and Wisconsin did not report the necessary information to analyze Medicaid 

payments and costs.
Appendix VIII: Comments from the Department 

of Health and Human Services

Page 64 GAO-13-48 Oversight of Medicaid Supplemental Payments

Appendix VIII: Comments from the 

Department of Health and Human Services
Appendix VIII: Comments from the Department 

of Health and Human Services

Page 65 GAO-13-48 Oversight of Medicaid Supplemental Payments
Appendix IX: GAO Contact and Staff 

Acknowledgments

Page 66 GAO-13-48 Oversight of Medicaid Supplemental Payments

Katherine Iritani, (202) 512-7114 or iritanik@gao.gov

In addition to the contact named above, Tim Bushfield, Assistant Director; 

Helen Desaulniers; Carolyn Fitzgerald; Sandra George; Peter Mangano; 

Roseanne Price; and Said Sariolghalam made key contributions to this 

report.

Appendix IX: GAO Contact and Staff 

Acknowledgments 

GAO Contact

Staff 

Acknowledgments 
Related GAO Products

Page 67 GAO-13-48 Oversight of Medicaid Supplemental Payments

Medicaid: States Reported Billions More in Supplemental Payments in 

Recent Years. GAO-12-694. Washington, D.C.: July 20, 2012.

Opportunities to Reduce Potential Duplication in Government Programs, 

Save Tax Dollars, and Enhance Revenue. GAO-11-318SP. Washington, 

D.C.: March 1, 2011.

High-Risk Series: An Update. GAO-11-278. Washington, D.C.: 

February 2011.

Medicaid: Ongoing Federal Oversight of Payments to Offset 

Uncompensated Hospital Care Costs Is Warranted. GAO-10-69. 

Washington, D.C.: November 20, 2009.

Medicaid: CMS Needs More Information on the Billions of Dollars Spent 

on Supplemental Payments. GAO-08-614. Washington, D.C.: May 30, 

2008.

Medicaid Financing: Long-standing Concerns about Inappropriate State 

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GAO-08-650T. Washington, D.C.: April 3, 2008.

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Arrangements Support Need for Improved Federal Oversight. 

GAO-08-255T. Washington, D.C.: November 1, 2007.

Medicaid Financing: Federal Oversight Initiative Is Consistent with 

Medicaid Payment Principles but Needs Greater Transparency. 

GAO-07-214. Washington, D.C.: March 30, 2007.

Medicaid Financial Management: Steps Taken to Improve Federal 

Oversight but Other Actions Needed to Sustain Efforts. GAO-06-705. 

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Medicaid Financing: States’ Use of Contingency-Fee Consultants to 

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Oversight. GAO-05-748. Washington, D.C.: June 28, 2005.

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Page 68 GAO-13-48 Oversight of Medicaid Supplemental Payments

Medicaid: Intergovernmental Transfers Have Facilitated State Financing 

Schemes. GAO-04-574T. Washington, D.C.: March 18, 2004.

Medicaid: Improved Federal Oversight of State Financing Schemes Is 

Needed. GAO-04-228. Washington, D.C.: February 13, 2004.

Major Management Challenges and Program Risks: Department of 

Health and Human Services. GAO-03-101. Washington, D.C.: January 

2003.

Medicaid: HCFA Reversed Its Position and Approved Additional State 

Financing Schemes. GAO-02-147. Washington, D.C.: October 30, 2001.

Medicaid: State Financing Schemes Again Drive Up Federal Payments. 

GAO/T-HEHS-00-193. Washington, D.C.: September 6, 2000.

Medicaid: Disproportionate Share Payments to State Psychiatric 

Hospitals. GAO/HEHS-98-52. Washington, D.C.: January 23, 1998.

Medicaid: Disproportionate Share Hospital Payments to Institutions for 

Mental Diseases. GAO/HEHS-97-181R. Washington, D.C.: July 15, 1997.

Medicaid: States Use Illusory Approaches to Shift Program Costs to 

Federal Government. GAO/HEHS-94-133. Washington, D.C.: August 1, 

1994.

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