Children’s hospitals lose more on treating kids covered by Medicaid

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An unintended consequence of reducing Disproportionate Share Hospital (DSH) payments may put significant financial pressure on children’s hospitals, according to a study published in JAMA Pediatrics.

Led by Jeffrey Colvin, MD, of Children’s Mercy Hospitals and Clinics at the University of Missouri-Kansas City, the study examined 2009 hospital discharge data for Medicaid patients 20 years old and younger from academic hospitals, non-teaching hospitals, freestanding children’s hospitals and children’s facilities within larger hospitals—a total of more than 1,400 facilities—along with hospitals’ financial data to estimate how much in Medicaid losses was recovered through DSH payments.  

The study found freestanding children’s hospitals had a higher median number of Medicaid-insured discharges. They also had the largest Medicaid losses for pediatric inpatient care at an average of $9 million per hospital between March and September 2015. DSH payments made up for about half those losses, researchers wrote, while teaching and non-teaching hospitals had far smaller losses, at $200,000 and $28,000, respectively.

The concern raised by Colvin and his coauthors is the $2 billion reduction in DSH payments in 2018 doesn’t account for the unique patient population in children’s hospitals, which are unlikely to see the financial benefits from reduced uncompensated costs and expanded Medicaid.

“The ACA’s effort to expand health insurance coverage was primarily directed at uninsured adults, not children,” Colvin and his coauthors wrote. “Compared with adults, fewer children were uninsured when the ACA was enacted. Therefore, it would be unexpected that hospital financial losses due to the care of uninsured and Medicaid-insured patients would be eliminated through the increased enrollment of uninsured children.”

In an accompanying editorial, Matthew Davis, MD, of Lurie Children’s Hospital in Chicago and Kristin Kan, MD, of the University of Michigan, said Colvin’s data showed children’s hospitals are at “a distinct disadvantage” financially when DSH payments go down, and suggested a new DSH payment method which adjusts for age.

“Annual DSH payments to hospitals in FY2018 and later years would not be lower than the mean DSH payment for each hospital in FY2015, 2016 and 2017, indexed to the average proportion of hospital discharges for individuals zero to 18 years old in those same years,” Davis and Kan wrote.