Study finds newly insured will not make up for ACA cuts to Disproportionate Share Hospitals

The expansion of health insurance under the Affordable Care Act (ACA) should mean fewer uninsured patients at Disproportionate Share Hospitals (DSHs), but estimates for just how many fewer such patients would need care might have been overly optimistic finds a new study on California hospitals appearing in Health Affairs.

Under the ACA, in 2019, DSHs will receive considerably less Federal funding for uncompensated care because the ACA’s authors expected that by then, the expansion of Medicaid and the individual insurance mandate would mean fewer uninsured patients and more privately insured patients who could generate profits that would help cover the cost of the remaining uninsured.

The problem with that rationale is that undocumented immigrants, patients in states that do not expand Medicaid and patients who opt out or simply fail to sign up for health insurance will still be out there in large numbers. By the researchers’ estimates, as many as 4 million in California and 30 million nationwide will still lack insurance in 2019, when the DSH cuts go into effect.

In addition, newly privately insured patients may prefer to get care at non-DSH facilities and this would limit safety-net hospitals’ ability to use profits from private health plan patients to cover losses from the uninsured and low Medicare payments.

Researchers from the UCLA Center for Health Policy Research and Virginia Commonwealth University attempted to estimate what the net impact of the DSH cuts and the expansion of health insurance would be on California’s safety-net hospitals and concluded that starting in 2019, these institutions could face a shortfall of $1.54 billion.

Their analysis, published in the June issue of Health Affairs, was based on the California Simulation of Insurance Markets (CalSIM), a modeling tool created by the UCLA Center for Health Policy Research and the UC Berkeley Center for Labor Research and Education that draws on a wide range of official data sources, including the California Health Interview Survey, to estimate the impact of various elements of the ACA in California.

Complicating matters further is that the uninsured are not spread evenly across the state or the nation. In California, they are concentrated in counties with high numbers of undocumented immigrants, who are ineligible for Medi-Cal, the state’s Medicaid program. Nationally, the uninsured will be predominantly in states that do no expand Medicaid.

A study released by the Colorado Hospital Association the same day as the Health Affairs research was published found that hospitals in states that chose to expand Medicaid under the Affordable Care Act saw more Medicaid patients and fewer self-pay and charity care cases in the first quarter of the year. In expansion states, hospitals on average saw the Medicaid proportion of total charges increase 29 percent from the same time period last year, while self-pay and charity care fell 25 percent and 30 percent respectively. But in non-expansion states, the numbers of self-pay and charity care patients remained the same.

"As challenging as these cuts will be for safety-net hospitals in California, they will be much worse in other states," stated study lead author Katherine Neuhausen, a clinical assistant professor at Virginia Commonwealth University and Robert Wood Johnson Foundation Clinical Scholar at UCLA, in a press release. "Safety-net hospitals in states that do not expand Medicaid and those in states that do not target DSH payments to the hospitals with the greatest need could be in jeopardy."

California targets its DSH payments to just 21 public institutions that see the largest numbers of uninsured and Medi-Cal patients. According to the researchers’ model of the likely impact of the DSH cuts, payments to these and other safety-net hospitals would drop by more than half and leave them short $1.38 billion to $1.54 billion in funding in 2019.

To help prevent these institutions from possibly going under or becoming “destabilized” by such a large funding loss, the authors recommend that California continue to make sure DSH payments are targeted to the safety-net hospitals that serve the most uninsured and Medi-Cal patients, as well as continue with plans to pay higher reimbursement rates to safety-net hospitals for people who are newly eligible for Medi-Cal. Other states may also wish to make similar changes. In addition, DSH hospitals in non-Medicaid expansion states might also need additional county and state subsidies.