Paragon Health Institute Icon White

New Paragon Report: BBB Cuts Payments To Hospitals Where Federal Spending Is Already Low

President at Paragon Health Institute
Brian Blase, Ph.D., is the President of Paragon Health Institute. Brian was Special Assistant to the President for Economic Policy at the White House’s National Economic Council (NEC) from 2017-2019, where he coordinated the development and execution of numerous health policies and advised the President, NEC director, and senior officials. After leaving the White House, Brian founded Blase Policy Strategies and serves as its CEO.

Good morning:
Today, Paragon Health Institute published Punishing Conservative States: Payment Cuts to Hospitals Where Federal Spending is Already Low, our first report which I authored. It was motivated by the Build Back Better (BBB) Act’s problematic payment cuts to safety net hospitals in states that have not adopted the Medicaid expansion under the terms of the Affordable Care Act (ACA). These cuts to the disproportionate share hospital (DSH) program and the uncompensated care pool program are patently unfair because they target states that already receive low amounts of federal support and that have saved the federal government hundreds of billions of dollars by being fiscally responsible. The cuts are controversial, leading both Democratic senators and Republican senators to raise strong concerns about them.  
In the report, I review how inequitable federal Medicaid funding is amongst states and how wealthy states perversely receive far more federal funds per person in poverty than poorer states. I then assess the enormous problems with the Medicaid DSH program—exacerbating inequities to poorer states and leaving little federal funding to support safety net hospitals in too many states while other states can lavish nearly all their hospitals with federal DSH funds. Medicaid expansion states benefit much more from DSH than non-expansion states, even though the BBB Act makes DSH cuts only to non-expansion states. The paper concludes with recommendations for reform of Medicaid supplemental payment programs, such as DSH, in a way that best allocates tax dollars to support safety net hospitals. The key takeaways are below.
Key Takeaways

  • Through Medicaid’s disproportionate share hospital (DSH) program, states are supposed to use federal funds to make payments to hospitals that provide uncompensated care to a high percentage of uninsured and low-income patients.
  • The DSH program fails to equitably target public resources to safety net hospitals, ultimately failing low-income individuals and the uninsured.
  • In 1992, Congress locked in a formula for calculating DSH funding to states which has—for three decades—rewarded states that had used gimmicky financing schemes to maximize DSH payments, thereby disadvantaging states that had not employed such schemes. 
  • States that expanded Medicaid under the Affordable Care Act have been much more likely to benefit from DSH’s perverse funding structure. In 2021, Medicaid expansion states received 171 percent more federal DSH funding per uninsured person and 66 percent more federal DSH funding per low-income resident. Federal DSH funds cover 48 percent of the uncompensated care provided by hospitals in Medicaid expansion states compared to just 17 percent in non-expansion states. 
  • Irrationally, the Build Back Better Act would cut federal DSH funds only to non-Medicaid expansion states. These are typically states with already low DSH payments that also collectively saved the federal government hundreds of billions of dollars from 2014 to 2021 by not expanding Medicaid. 

To learn about Paragon, and our outstanding team and recent work, please visit our website. In addition to our federal health reform efforts, Paragon is focused on improving health policy in the states. Please check out our state health reform book: “Don’t Wait for Washington: How States Can Reform Health Care Today.” 
Brian C. Blase, PhD
Paragon Health Institute

Recent Newsletters

Paragon’s Initial Impact
Paragon Health Institute Newsletter


Sign up now for your health policy updates.

This field is for validation purposes and should be left unchanged.