Medicaid: States' Use and Distribution of Supplemental Payments to Hospitals
Released: 2019-07-29T00:00:00


Highlights: section_title: Why GAO Did This Study
paragraphs: Medicaid, the joint federal-state program that finances health care coverage for low-income and medically needy individuals, spent an estimated $177.5 billion on hospital care in fiscal year 2017. About a quarter ($46.3 billion) of those hospital payments were supplemental payments—typically lump sum payments made to providers that are not tied to a specific individual's care. States determine hospital payment amounts within federal limits. In fiscal year 2017, DSH payments totaled about $18.1 billion. Beginning in fiscal year 2020, the amount of DSH payments each state can make is scheduled to be reduced.

GAO was asked to study Medicaid DSH payments to hospitals. Among other things, GAO examined hospital uncompensated care costs and DSH payments by state Medicaid program and hospital characteristics.

GAO analyzed data from the 2014 DSH audits—states' independently audited and certified reports of hospital-level uncompensated care costs and DSH payments—from 47 states and the District of Columbia (48 states). Three states were excluded from the analysis because they either did not make DSH payments or the submitted data were unreliable. The 2014 data were the most recently available audited, hospital-specific, data at the time of GAO's analysis. We provided a draft of this report to HHS for review. HHS provided technical comments, which we incorporated as appropriate.

section_title: What GAO Found
paragraphs: Medicaid disproportionate share hospital (DSH) payments are one type of supplemental payment and are designed to help offset hospitals' uncompensated care costs for serving Medicaid beneficiaries and uninsured patients. Under the Medicaid DSH program, uncompensated care costs include two components: (1) costs related to care for the uninsured; and (2) the Medicaid shortfall—the gap between a state's Medicaid payment rates and hospitals' costs for serving Medicaid beneficiaries. GAO's analysis of hospitals receiving DSH payments showed that in 2014, costs related to care for the uninsured comprised 68 percent of total uncompensated care costs, and the remaining 32 percent was the Medicaid shortfall.

Across states, GAO found that total DSH payments varied significantly in 2014. DSH payment levels are generally tied to state DSH spending in 1992 and since 1993 states have been subject to a limit on the amount of federal funding that may be used for DSH payments.

Medicaid DSH payments covered 51 percent of the uncompensated care costs. In 19 states, DSH payments covered at least 50 percent of uncompensated care costs.

DSH payments comprised about 14 percent of total Medicaid payments, yet wide variation existed. For example, DSH payments comprised about 97 percent of Medicaid payments to DSH hospitals in Maine and 0.7 percent of Medicaid payments to DSH hospitals in Tennessee.

Some types of hospitals received a greater proportion of DSH payments relative to their share of total uncompensated care costs. For example, states generally provided more DSH payments to public hospitals (in comparison to private and non-profit hospitals) and teaching hospitals (as compared to non-teaching hospitals) relative to their share of total uncompensated care costs.

section_title: Letter
paragraphs: Medicaid, the joint, federal-state program that finances health care  coverage for low-income and medically needy individuals, spent an  estimated $177.5 billion on hospital care in 2017, the most recent year  data were available. As a component of Medicaid spending, hospital  expenditures exceed spending for any other type of Medicaid service.  About a quarter ($46.3 billion) of Medicaid hospital payments were  supplemental payments—typically lump sum payments made to providers  that are not tied to a specific individual’s care. One type of Medicaid  supplemental payment, disproportionate share hospital (DSH) payments,  is designed to help offset hospital uncompensated care costs for services  provided to Medicaid beneficiaries and uninsured low-income patients.  Under Medicaid DSH, uncompensated care costs consist of two  components: (1) costs related to the care of uninsured patients, for which  hospitals are generally not fully compensated; and (2) the Medicaid  shortfall—the gap between a state’s Medicaid payments and hospital  costs for serving Medicaid beneficiaries. States may also make other  types of supplemental payments, such as those that provide additional  Medicaid payments for certain services or providers. Additionally,  Medicare makes payments to eligible hospitals to offset uncompensated  care costs.

At the federal level, the Centers for Medicare & Medicaid Services (CMS),  within the Department of Health and Human Services (HHS), oversees  the Medicaid program, providing guidance and overseeing states’  compliance with federal requirements, including those for Medicaid DSH  payments. States are responsible for the day-to-day administration of the  Medicaid program, including determining payment amounts to individual  hospitals consistent with any applicable federal limits.

Medicaid has been on our high-risk list since 2003, in part, because of  concerns relating to the appropriate oversight of Medicaid dollars,  including better oversight of supplemental payments. You asked us to  study Medicaid supplemental payments to hospitals. This report  describes  (1)  states’ changes in their use of Medicaid supplemental payments;  (2)  hospital uncompensated care costs and DSH payments by state  Medicaid program and hospital characteristics.

For both objectives, we obtained and analyzed data compiled by a  contractor on behalf of the Medicaid and CHIP Payment and Access  Commission (MACPAC), a legislative agency that provides policy and  data analysis and makes recommendations to the Congress. The data  included state plan rate year 2014 DSH audits and data from Medicare  cost reports. The 2014 DSH audits—the most recently available audited  data at the time of our analysis—report hospital-specific data on  uncompensated care costs and DSH payments. A state plan rate year is  the 12-month period defined in a state’s approved Medicaid state plan.  For purposes of this report, the term “2014 DSH audits” refers to the  audits conducted in the 2014 state plan rate year. The data we analyzed,  which were submitted by 48 states and the District of Columbia, do not  include a census of all hospitals, but only those hospitals that were  reported in the 2014 DSH audits. Two states, Massachusetts and  Hawaii, did not submit a 2014 DSH audit, because they did not make  DSH payments. Additionally, while South Dakota submitted a 2014 DSH  audit, we excluded the state from our analysis over concerns about the  reliability of the reported cost measures. To assess the reliability of the  CMS and state data, we interviewed MACPAC and CMS officials,  reviewed relevant data manuals and other documentation, performed  electronic tests of the data to identify any outliers or anomalies, and  compared the data with data from other published sources. We  determined that the data were sufficiently reliable for the purposes of our  reporting objectives.

To describe changes in states’ use of Medicaid supplemental payments,  we reviewed existing research, including our prior work and reports by  MACPAC, and the Kaiser Family Foundation. Additionally, we reviewed  relevant laws and regulations.

We conducted this performance audit from January 2019 to July 2019 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.
subsections: section_title: Background
paragraphs: CMS and states jointly administer the Medicaid program and generally  share in the financing of Medicaid payments according to a formula  established in law. States may deliver health care services to Medicaid  beneficiaries through fee-for-service payments to participating providers  or through Medicaid managed care plans, through which states pay plans  a fixed amount per beneficiary—typically per member per month—to  provide a specific set of Medicaid-covered services. States finance their  share (nonfederal share) of Medicaid program spending in a variety of  ways, including state funds, such as state general funds appropriated to  the state Medicaid program and funds collected through taxes levied on  health care providers. Within limits, however, states may also use other  sources of funds—including funding from local government providers,  such as county-owned or county-operated hospitals, or from local  governments on behalf of government providers. Federal law allows  states to finance up to 60 percent of the nonfederal share of Medicaid  payments from local government funds.
subsections: section_title: Medicaid Payments to Hospitals
paragraphs: State Medicaid agencies have two primary mechanisms for making  payments to hospitals—base payments and supplemental payments— and both can qualify for federal matching funds.

Base payments are payments to hospitals for specific services  provided to Medicaid beneficiaries through both fee-for-service and  managed care. These payments are set by state Medicaid programs  or managed care plans, and can vary considerably across states for  the same services. Payment amounts for the same service may also  vary within a state. States’ Medicaid base payments are typically  lower than other payers’, and often are below the costs of providing  services.

Supplemental payments are typically lump sum payments made to  hospitals that are not specifically tied to an individual’s care. Like all  Medicaid payments, supplemental payments are required to be  economical and efficient. Supplemental payments can be grouped  into two broad categories: (1) DSH payments, which states are  required to make to certain hospitals; and (2) non-DSH payments,  which states are allowed to make, but are not required by law.
subsections: section_title: DSH Payments
paragraphs: DSH payments are designed to help offset uncompensated care costs for  hospitals serving a high proportion of Medicaid beneficiaries and  uninsured low-income patients. In fiscal year 2017, total DSH payments  to hospitals nationally were about $18.1 billion. States may distribute  DSH payments to any eligible hospital in the state; however, under  federal law, the total amount of DSH payments to a hospital must not be  more than the total amount of uncompensated care provided by the  hospital (both the Medicaid shortfall and uncompensated costs for care  for the uninsured). To be eligible for a DSH payment, hospitals must meet  minimum requirements such as having a Medicaid inpatient utilization  rate of at least 1 percent. States are required to make DSH payments to  certain hospitals—termed deemed-DSH hospitals—with a Medicaid inpatient utilization rate of at least one standard deviation above the mean  for hospitals in the state that receive Medicaid payments, or a low-income  utilization rate that exceeds 25 percent.

The amount of federal funding each state may claim for DSH payments is  limited by federal law. Since fiscal year 1993, each state is subject to a  federal DSH allotment that establishes the maximum federal funding  available for the payments. A state’s DSH allotment is largely based on its  fiscal year 1992 DSH spending, although Congress has since made  several incremental adjustments to these allotments. Ultimately, however,  the states that spent the most in fiscal year 1992 continue to have the  largest allotments; conversely, the states that spent the least in fiscal year  1992 have the smallest allotments.

States may choose to make DSH payments to institutions for mental  disease (IMD), which can include state-operated psychiatric hospitals.  Prior to 1997, a large share of DSH payments went to state-operated  IMDs, where they were used to pay for services not covered by Medicaid  and any remaining funds were returned to the state treasuries. In general,  Medicaid excludes fee-for-service base payments for beneficiaries aged  21-64 who are residents of IMDs—called the IMD exclusion—and using  DSH payments allowed states to support the costs of IMDs. In 1997,  Congress restricted the total amount of DSH payments a state could  make to IMDs as a group by establishing an annual limit on payments to  IMDs for each state. Any unspent funds within the IMD-designated limit  can be used for other hospital types.

section_title: Non-DSH Payments
paragraphs: Non-DSH payments include four types of supplemental payments that  states may make, but are not required to do so, to hospitals and other  providers.

Medicaid upper payment limit (UPL) payments are lump-sum  payments that are made in addition to fee-for-service base payments.  The UPL is a limit or ceiling on the amount of a state’s Medicaid  payments for which the federal government will match spending. The  UPL is based on the difference between Medicaid fee-for-service  base payments and an estimate of what Medicare would pay for  comparable services. The UPL is not a hospital-specific limit, but is  applied in the aggregate across certain categories of providers. States  have some flexibility in deciding which hospitals will receive a UPL  payment, and how to allocate UPL payments among hospitals. In  fiscal year 2017, UPL payments totaled nearly $13 billion.

Uncompensated care pool payments are payments that some states  make to hospitals specifically for uncompensated care costs in  conjunction with section 1115 demonstration waivers and pilot  projects for which they have received approval from the Secretary of  HHS. Specifically, section 1115 of the Social Security Act authorizes  the Secretary of HHS to waive certain federal Medicaid requirements  and allow costs that would not otherwise be eligible for federal  matching funds for experimental, pilot, or demonstration programs  that, in the Secretary’s judgment, are likely to assist in promoting  Medicaid objectives. States have received approval to make  supplemental payments for hospital uncompensated care in their  Medicaid programs. In fiscal year 2017, states reported total spending  of about $8 billion through uncompensated care pools.

Delivery system reform incentive payment (DSRIP) programs, which  have also been authorized under section 1115 demonstrations, allow  states to make supplemental payments to providers engaging in  various improvement projects that align with state delivery system  reform objectives. Examples of reform objectives include improving  care for patients with specific conditions or increasing capacity. In  fiscal year 2017, DSRIP program payments totaled about $7.3  billion.

Graduate medical education payments help support teaching  hospitals, and can include teaching costs, such as physician resident  salaries, though states are not required to make such payments to  teaching hospitals. States have significant flexibility in designing and  administering these payments; however, the payments are subject to  the UPL. In fiscal year 2017, Medicaid graduate medical education  payments totaled about $2 billion.

section_title: The Patient Protection and Affordable Care Act (PPACA) and DSH Allotments
paragraphs: Effective January 1, 2014, PPACA allowed states to expand Medicaid  eligibility to certain non-pregnant, non-elderly individuals. PPACA also  required a phased reduction in DSH allotments to states, reflecting the  expectation that the number of uninsured individuals would decline—and  so would hospital spending on uncompensated care. As of May 2019,  there were 37 “expansion states”—those states that chose to expand  Medicaid eligibility—and 14 “non-expansion states”—those that did not  choose to expand Medicaid. Congress has delayed the reduction in DSH  allotments several times. The reductions are scheduled to begin in fiscal  year 2020.

Between 2013 and 2014, both expansion and non-expansion states  reported different degrees of change in care for the uninsured and  Medicaid shortfall. In particular, MACPAC reported that between 2013  and 2014, the year in which most state Medicaid expansions took effect,  expansion states’ uncompensated care costs for the uninsured declined  by $2.2 billion (19 percent), while non-expansion states’ uncompensated  care costs for the uninsured increased by $0.6 billion (5 percent). During  the same period, expansion states’ Medicaid shortfall increased by $2.2  billion (36 percent), and non-expansion states’ Medicaid shortfall  increased by $1.8 billion (546 percent).

section_title: States Increasingly Made Supplemental Payments to Hospitals
paragraphs: States’ use of supplemental payments has grown in recent decades,  partly due to the flexibility supplemental payments provide. This flexibility  is twofold: supplemental payments provide states with flexibility in  financing the nonfederal share of supplemental payments, and flexibility  to target the payments to specific hospitals or types of hospitals.
subsections: section_title: States Increasingly Made Supplemental Payments to Hospitals, while Reducing or Freezing Hospitals’ Base Payments
paragraphs: Total supplemental payments to hospitals have grown over time, while  states’ base payments have often been frozen or reduced. Congress  imposed limits on DSH spending in the 1990s, and since then states’ use  of non-DSH payments has grown. Between fiscal year 2000 and fiscal  year 2017, DSH payments increased about 16 percent, from $15.6 billion  to $18.1 billion. In prior work, we reported that in fiscal year 2006 state  Medicaid agencies made at least $6.3 billion in non-DSH payments,  though the exact amounts are unknown, because states did not report all  their payments to CMS. By fiscal year 2017, the amount of non-DSH  payments had increased to $30.4 billion. Both uncompensated care  pool payments and DSRIP programs are relatively new types of non-DSH  payments, and thus contributed to the overall increase in supplemental  payments. In prior work, we reported that, as of February 2017, CMS  authorized nearly $38.7 billion in DSRIP spending nonconsecutively over  2011 to 2022 in four states with the largest DSRIP programs.

Our prior work found that new or increased supplemental payments  helped mitigate the increasing gap between Medicaid base payments and  hospital costs. While supplemental payments increased, the number of  states reducing or freezing base payments to hospitals has increased, in  part, because states reported challenges paying the nonfederal share  with state general funds. Our work found that from 2008 to 2011, across  all providers, the number of states making at least one base payment  reduction grew from 13 to 34, while the number of states increasing at  least one base payment fell over the same period. Across all 4 years,  states most frequently reported reducing base payments for hospitals.

The Kaiser Family Foundation’s annual survey data shows the trend  continued in more recent years. Specifically, over half of states froze or  reduced inpatient hospital base payments each fiscal year from 2011 to  2018, ranging from a low of 28 states in 2011 and 2018, to a high of 39  states in 2012. (See table 1.)

In a September 2018 study of five states, MACPAC found that hospitals  and state Medicaid officials often prefer increases to supplemental  payments rather than increases to base payments, because supplemental payments come with more predictability. MACPAC found  that all five states reported reducing hospital base payments from 2007 to  2011. After 2011, all five states kept base payments frozen with no  adjustment for inflation. As a result, base payments to hospitals in these  states were lower in 2018 relative to other payers and hospital costs. To  address the growing gap between base payments and hospital costs,  states collaborated with hospitals to establish or increase supplemental  payments. In the five states, supplemental payments ranged from 18  percent to 61 percent of total hospital payments.

section_title: States Have Relied on Multiple Sources of Funds to Finance Their Nonfederal Share
paragraphs: More often than with base payments, states have relied on sources other  than state general funds to finance the nonfederal share of supplemental  payments. For example, states may receive funds for the nonfederal  share of supplemental payments through taxes levied on health care  providers. (See fig. 1.) In previous work, we found that funds from local  governments and health care providers constituted about 50 percent of  the nonfederal share for DSH and non-DSH payments in fiscal years  2008 through 2012. In contrast, funds from local governments and  health care providers constituted approximately 30 percent of base  payments during the same time period. The MACPAC study of five states  also found that states and hospitals preferred supplemental payments,  because hospitals can track the extent to which their tax assessments are  recouped through supplemental payments.

In a July 2014 report, we found that the number of states relying on  provider taxes increased, and that provider tax revenues were then used  for the nonfederal share of supplemental payments. In particular, the  total number of provider taxes increased from 119 taxes in 42 states in  2008 to 159 taxes in 47 states in 2012—a 34 percent increase. Kaiser  Family Foundation data show this trend has continued. According to  state survey data, the number of states using inpatient hospital provider  taxes has steadily increased from fiscal year 2011 to 2018, ranging from  a low of 34 states in 2011, to a high of 42 states in 2017 and 2018. (See  table 2.)

section_title: Supplemental Payments Allow States to Target Payments to Certain Hospitals or Types of Hospitals
paragraphs: Supplemental payments provide states with flexibility that allows them to  address states’ goals by targeting payments to particular hospitals or  hospital types, such as public hospitals or teaching hospitals. States may  choose to target supplemental payments to hospitals that may not have  the highest uncompensated care costs. Our prior work found some states’  DSH payments were not proportionally targeted to hospitals with the  highest uncompensated care costs, which DSH payments are designed  to address. Based on our prior analysis of annual hospital-specific 2010 DSH data, we reported that in 30 of 42 states, hospitals receiving the  largest share of state DSH payments did not provide the largest share of  total uncompensated care. Moreover, our prior review of the independent  DSH audits found that

41 states made DSH payments to 717 hospitals that exceeded the  individual hospitals’ uncompensated care costs as calculated by the  auditors,

9 states did not accurately calculate the uncompensated care costs of  206 hospitals in those states for purposes of making DSH payments,  and

15 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.

States’ criteria for identifying eligible DSH hospitals and how much  funding they receive vary, but were often related to hospital ownership,  hospital type, and geographic factors. Our prior work found that 2006  DSH payments to individual hospitals varied widely, ranging from 1 cent  to about $395 million. For example, California reported both the lowest  and highest 2006 DSH payment amounts; the state made a total of only  $160 in DSH payments to 96 private hospitals and paid $2 billion in DSH  payments to 51 government hospitals.

Based on our analysis of 2014 DSH audits, several states targeted DSH  payments to certain hospitals and hospital types, including the following:

Public hospitals: States targeting nearly all (93 percent or higher) of  their DSH funding to public hospitals included Arkansas (99 percent),  California (100 percent), Illinois (99 percent), Iowa (93 percent), Maine  (100 percent), and Washington (97 percent).

Nonprofit hospitals: Nebraska targeted 98 percent of its DSH funding  to nonprofit hospitals.

High-teaching hospitals: Arkansas targeted 98 percent of DSH  funding to high-teaching hospitals, defined as teaching hospitals with  an intern-and-resident-to-bed ratio of 0.25 or greater.

IMDs: Maine makes DSH payments to the two state-run IMDs. In  2014, 18 states directed their entire IMD-designated DSH limit to  IMDs. (For additional information on DSH payments to IMDs, see  table 9 in app. II).

Similarly, states can target UPL payments to certain hospitals. We and  the HHS Office of the Inspector General have reported that some states  concentrated these payments to a small number of providers.

section_title: GAO and Others Have Noted Concerns With States’ Use of Supplemental Payments
paragraphs: Our work has highlighted a number of concerns about the use of non- DSH payments from various perspectives, highlighting the need for  transparent reporting, ensuring expenditures meet Medicaid purposes,  and concerns regarding arrangements that shift costs from the states to  the federal government. For example, in November 2012, we  recommended that Congress consider requiring CMS to improve the  transparency of and accountability for non-DSH payments by requiring  facility-specific payment reporting and annual audits. The report noted  that the annual DSH reports and audits that states began submitting in  2010 were important steps toward improving transparency and  accountability for Medicaid DSH payments; however, similar information  is lacking for non-DSH payments. Moreover, the report stated that the  limited information available on non-DSH payments shows that a large  share of these payments are paid to a small number of hospitals; when  these payments are combined with Medicaid base payments, hundreds of  hospitals may be receiving Medicaid payments well in excess of their  actual costs of providing Medicaid services. As of March 2019, Congress  has not taken any action, but CMS announced in fall 2018 that it was  planning a proposed rule on supplemental payments that, if finalized,  would improve transparency by requiring states to provide CMS with  certain information on Medicaid supplemental payments. The agency  plans to release the proposed rule for comment by fall 2019.

In 2014, we recommended that CMS develop a data collection strategy  ensuring states report accurate and complete data on all sources of funds  used to finance the nonfederal share of Medicaid payments. Such data  are needed to (1) track trends in financing the nonfederal share, and (2)  oversee compliance with current limits on sources of financing the  nonfederal share. CMS did not concur with our recommendation, but did  acknowledge the agency does not have sufficient data to oversee  compliance with the 60 percent limit on local government contributions to  a state’s nonfederal share.

section_title: Hospital Uncompensated Care Costs and DSH Payments Varied by State; Some Types of Hospitals Received a Greater Proportion of DSH Payments
subsections: section_title: Uncompensated Care Costs Varied by State and Were Mainly for Costs Related to Treating Uninsured Patients
paragraphs: Among hospitals receiving DSH payments in 2014, total uncompensated  care costs varied by state, ranging from $5.9 million in North Dakota to  $6.2 billion in New York. In the hospitals, most uncompensated care costs  were related to costs to care for uninsured patients, rather than the  Medicaid shortfall. For example, among hospitals receiving DSH  payments in the 48 states studied:

Costs related to care for the uninsured comprised about two-thirds  (67.9 percent) of total uncompensated care costs for DSH hospitals.  The remaining share of DSH hospital uncompensated care costs  consisted of the Medicaid shortfall.

In 34 states, costs for care for the uninsured exceeded the Medicaid  shortfall. In the remaining 14 states, the Medicaid shortfall exceeded  costs related to care for the uninsured.

In 15 states, Medicaid paid hospitals more than the total cost of  services provided to Medicaid beneficiaries, resulting in a surplus of  Medicaid payments—even prior to receiving DSH payments. Termed  a negative Medicaid shortfall, these surplus funds can be the result of  non-DSH Medicaid supplemental payments. The remaining 33 states  had some Medicaid shortfall. (See table 3.) No states had a surplus of  total uncompensated care costs.  (For additional information on state uncompensated care costs and DSH  payments in 2014, see table 10 in app. II.)

section_title: Across States, DSH Payments Varied Significantly in Amounts, Percentage of Uncompensated Care Costs Covered, and Percentage of States’ Medicaid Spending on Hospitals
paragraphs: DSH payments—both the federal and nonfederal share—varied  significantly in the amount that each state paid to hospitals in 2014. (See  table 4 and fig. 2.) Wyoming made the smallest amount of DSH payments  at about $500,000, while New York made the largest amount in DSH  payments at $3.5 billion. Differences in DSH payments are largely the  result of differences in the state allocations established in law.

The proportion of total DSH hospital uncompensated care costs covered  by total DSH payments in 2014 also varied considerably by state.  Nationally, DSH payments ($18.3 billion) covered about half of DSH  hospital uncompensated care costs ($36.2 billion). Nineteen states made  DSH payments totaling at least 50 percent of uncompensated care costs  for the states’ DSH hospitals, while 29 states made DSH payments of  less than 50 percent of uncompensated care costs for the states’ DSH  hospitals. (See table 5.) Four states (California, Illinois, Maryland, and  Missouri) made DSH payments that exceeded aggregate hospital  uncompensated care costs. (For additional information on state  uncompensated care costs and DSH payments in 2014, see table 10 in  app. II.)

Among hospitals receiving them, DSH payments accounted for 13.6  percent of total Medicaid payments, nationally, but there was  considerable variation across states. For example, DSH payments  comprised 96.6 percent of Medicaid payments to DSH hospitals in Maine  and 0.7 percent of Medicaid payments to DSH hospitals in Tennessee.  In 40 states, DSH payments accounted for less than 20 percent of total  Medicaid payments to hospitals, but in 8 states, it exceeded 20 percent.  (See table 6.) (For additional information on state Medicaid payments to  hospitals, see table 11 in app. II.)

section_title: Deemed-DSH, Public, and Teaching Hospitals Received a Greater Share of DSH Payments Relative to their Proportion of Uncompensated Care Costs
paragraphs: Among deemed and non-deemed DSH hospitals, overall deemed-DSH  hospitals received larger relative DSH payments compared to non- deemed DSH hospitals. Deemed-DSH hospitals received 69.9 percent  of DSH payments in 2014, but carried 51.2 percent of uncompensated  care costs, relative to all hospitals receiving DSH payments that year.  Each of the 48 states that distributed DSH payments in 2014 had at least  one deemed-DSH hospital. (See table 7 for hospital type definitions.)  Most of these states (36) provided deemed-DSH hospitals with a greater  share of DSH payments relative to their share of total uncompensated  care costs. (See table 8 for a summary of how states’ DSH payments to  deemed-DSH hospitals compared to the hospitals’ share of  uncompensated care costs, and table 12 in app. II for additional  information by state.)

In terms of ownership and teaching hospital status, hospitals that were  publicly owned or teaching hospitals also generally received a greater  proportion of DSH payments relative to their share of total  uncompensated care costs.

Among the three different ownership groups (public, non-profit, and  private), public hospitals generally received a larger share of DSH  payments relative to their share of uncompensated care. Among  hospitals receiving DSH payments in 2014, public (36.7 percent) and  nonprofit (53.7 percent) hospitals accounted for more uncompensated  care costs than that of privately owned hospitals (9.6 percent). States  generally provided more DSH payments to public hospitals (62.8  percent) relative to their share of total uncompensated care costs  (36.7 percent). (For additional information on DSH payments and  hospitals’ uncompensated care costs by ownership, see table 13 in  app. II.)

States distribute DSH payments to teaching hospitals at different  rates, but generally provided a greater proportion of DSH payments to  high-teaching hospitals (56.5 percent) relative to their share of total  DSH hospital uncompensated care costs (44.0 percent). (For  additional information on DSH payments and hospitals’  uncompensated care costs by hospital teaching status, see table 14 in  app. II.)

Nationally, urban hospitals received a greater share of DSH payments  relative to rural hospitals, with 89.6 percent of DSH funds distributed  to urban hospitals and the remaining 10.4 percent distributed to rural  hospitals. This proportion corresponds to a similar distribution of  uncompensated care costs, with 88.2 percent of uncompensated care  costs among DSH hospitals carried by urban hospitals and the  remaining 11.8 percent carried by rural hospitals. (For additional  information on DSH payments and hospitals’ uncompensated care  costs by urban/rural status, see table 15 in app. II.)

For additional information on variation in uncompensated care and DSH  payments by hospital category and sole community provider status, and  state characteristics, see tables 16 through 19 in appendix II.

section_title: Agency Comments
paragraphs: We provided a draft of this report to HHS for review. HHS provided  technical comments, which we incorporated as appropriate.

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 appropriate congressional  committees, to the Secretary of Health and Human Services, the  Administrator of CMS, and other interested parties. In addition, the report  will be available at no charge on the GAO website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact  me at (202) 512-7114, or yocomc@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made key contributions to this  report are listed in appendix III.

section_title: Appendix I: Selected Bibliography
paragraphs: This bibliography contains citations for the eight Kaiser Family Foundation  reports referenced in the report.

Kaiser Family Foundation and Health Management Associates. States  Focus on Quality and Outcomes Amid Waiver Changes: Results from a  50-State Medicaid Budget Survey for State Fiscal Years 2018 and 2019.  Washington, D.C.: Kaiser Family Foundation, and National Association of  Medicaid Directors, October 2018.

Kaiser Family Foundation and Health Management Associates. Medicaid  Moving Ahead in Uncertain Times: Results from a 50-State Medicaid  Budget Survey for State Fiscal Years 2017 and 2018. Washington, D.C.:  Kaiser Family Foundation, October 2017.

Kaiser Family Foundation and Health Management Associates.  Implementing Coverage and Payment Initiatives: Results from a 50-State  Medicaid Budget Survey for State Fiscal Years 2016 and 2017.  Washington, D.C.: Kaiser Family Foundation and National Association of  Medicaid Directors, October 2016.

Kaiser Family Foundation and Health Management Associates. Medicaid  Reforms to Expand Coverage, Control Costs and Improve Care: Results  from a 50-State Medicaid Budget Survey for State Fiscal Years 2015 and  2016. Washington, D.C.: Kaiser Family Foundation and National  Association of Medicaid Directors, October 2015.

Kaiser Family Foundation and Health Management Associates. Medicaid  in an Era of Health & Delivery System Reform: Results from a 50-State  Medicaid Budget Survey for State Fiscal Years 2014 and 2015.  Washington, D.C.: Kaiser Family Foundation, and National Association of  Medicaid Directors, October 2014.

Kaiser Family Foundation and Health Management Associates. Medicaid  in a Historic Time of Transformation: Results from a 50-State Medicaid  Budget Survey for State Fiscal Years 2013 and 2014. Washington, D.C.:  Kaiser Commission on Medicaid and the Uninsured, Kaiser Family  Foundation, October 2013.

Kaiser Family Foundation and Health Management Associates. Medicaid  Today; Preparing for Tomorrow: A Look at State Medicaid Program  Spending, Enrollment and Policy Trends Results from a 50-State  Medicaid Budget Survey for State Fiscal Years 2012 and 2013.  Washington, D.C.: Kaiser Commission on Medicaid and the Uninsured,  Kaiser Family Foundation, October 2012.

Kaiser Family Foundation and Health Management Associates. Moving  Ahead Amid Fiscal Challenges: A Look at Medicaid Spending, Coverage  and Policy Trends Results from a 50-State Medicaid Budget Survey for  State Fiscal Years 2011 and 2012. Washington, D.C.: Kaiser Commission  on Medicaid and the Uninsured, Kaiser Family Foundation, October 2011.

section_title: Appendix II: Data on Disproportionate Share Hospital Payments and Hospital Uncompensated Care Costs by State
paragraphs: To conduct this analysis, we used data compiled by Acumen for the  Medicaid and CHIP Payment and Access Commission. These data  consist of measures from several sources. The measures used within this  report were collected from state disproportionate share hospital (DSH)  audits and Medicare cost reports. The 2014 DSH audits, which report  data on hospital uncompensated care costs and DSH payments to  hospitals, were submitted by 48 states and the District of Columbia.  These data do not include a census of all hospitals, but only those  hospitals that were reported in the 2014 DSH audits. As a result, these  data do not capture all uncompensated care costs in each state, only  uncompensated care costs for those hospitals reported in the 2014 DSH  audits. Two states, Massachusetts and Hawaii, did not submit a 2014  DSH audit, because they did not make DSH payments. Additionally, while  South Dakota submitted a 2014 DSH audit, we excluded the state from  our analysis because of concerns about the reliability of the reported cost  measures.

In addition, not all hospitals reported every data element we analyzed. As  a result, total uncompensated care costs and total DSH payments vary  between tables, as hospitals were excluded from a given table if they did  not report the characteristic described by the table. The numbers of  hospitals excluded because they did not report a given data element are  noted in each table for which this is the case. Likewise, as  uncompensated care costs are an important focus of the report, we also  excluded from all analyses 13 hospitals that did not report a value for  uncompensated care costs.

section_title: Appendix III: GAO Contacts and Staff Acknowledgments
subsections: section_title: GAO Contacts

section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Lori Achman (Assistant Director),  Dawn Nelson (Analyst-in-Charge), Sean Miskell, and Jeffrey Tamburello  made key contributions to this report. Also contributing were Tim  Bushfield, Drew Long, Vikki Porter, and Emily Wilson.

Fast facts: Medicaid spent over $177 billion on hospital care in fiscal year 2017. A quarter of these payments were supplemental payments—lump sum payments that are not tied to a specific patient's care.

Disproportionate share hospital payments are one type of supplemental payment. To help offset the costs for hospital services, these payments are given to hospitals that serve a high proportion of Medicaid and uninsured patients.

We found that these payments covered 51% of the costs of uncompensated care at hospitals receiving payments nationwide.

Question-summary annotations: questions: question: What are DSH payments?
answer: Medicaid disproportionate share hospital (DSH) payments are one type of supplemental payment and are designed to help offset hospitals' uncompensated care costs for serving Medicaid beneficiaries and uninsured patients.

question: What components make up the DSH program?
answer: Under the Medicaid DSH program, uncompensated care costs include two components: (1) costs related to care for the uninsured; and (2) the Medicaid shortfall—the gap between a state's Medicaid payment rates and hospitals' costs for serving Medicaid beneficiaries.
child_questions: question: What did GAO's analysis of the DSH program say?
answer: GAO's analysis of hospitals receiving DSH payments showed that in 2014, costs related to care for the uninsured comprised 68 percent of total uncompensated care costs, and the remaining 32 percent was the Medicaid shortfall.

questions: question: What is Medicaid?
answer: Medicaid, the joint federal-state program that finances health care coverage for low-income and medically needy individuals, spent an estimated $177.5 billion on hospital care in fiscal year 2017.

question: What are supplemental payments?
answer: About a quarter ($46.3 billion) of those hospital payments were supplemental payments—typically lump sum payments made to providers that are not tied to a specific individual's care.

question: What determines hospital payment amounts?
answer: States determine hospital payment amounts within federal limits.
child_questions: question: How are hospital payment amounts scheduled to change?
answer: Beginning in fiscal year 2020, the amount of DSH payments each state can make is scheduled to be reduced.

questions: question: How did GAO get data for this report?
answer: GAO analyzed data from the 2014 DSH audits—states' independently audited and certified reports of hospital-level uncompensated care costs and DSH payments—from 47 states and the District of Columbia (48 states).
child_questions: question: Why were  3 states excluded from the data?
answer: Three states were excluded from the analysis because they either did not make DSH payments or the submitted data were unreliable.

question: How was the GAO report dealt with?
answer: The 2014 data were the most recently available audited, hospital-specific, data at the time of GAO's analysis. We provided a draft of this report to HHS for review. HHS provided technical comments, which we incorporated as appropriate.