DSH is an acronym for the phrase “Disproportionate Share Hospital” payments. Hospitals that meet CMS requirements for serving a large share of low-income patients qualify for additional payments through Medicare and Medicaid. DSH payments are the only type of Medicaid payment in statute that is explicitly intended to cover a portion of unpaid services hospitals provide to uninsured patients. DSH payments also serve to somewhat offset low Medicaid rates since base Medicaid payments may not cover the hospitals’ costs of providing services. The ACA contained large cuts to DSH because the law had other spending provisions that would reduce the number of people without health insurance, but those cuts have never taken effect.
The DSH program has two essential features: 1) federal dollars are distributed to states, and 2) states make payments to hospitals. DSH payments have never been well aligned with the program’s aims. Federal DSH funds are inequitably distributed across states and are, instead, correlated with states use of financing gimmicks. In the mid-1980s, the federal government issued a regulation and guidance that permitted states to fund their share of DSH payments with schemes like provider taxes, essentially allowing states to receive federal payments without states paying their share. In response to explosive DSH payment growth, Congress capped DSH funding in 1992. That cap locked states into the level of DSH funding that they had in 1992, essentially rewarding states that employed more substantial financing schemes more than three decades ago. As a result, hospitals that provide little uncompensated care in states that receive large DSH payments often receive more money through the program than hospitals that provide much more uncompensated care in states that receive low DSH payments.