What else does Medicaid do? Medicaid coverage, safety-net burden, and hospital safety-net subsidies

Many Americans seeking hospital care lack health insurance or are unable to afford out-of-pocket payments. To assist hospitals with this $38B burden of unreimbursed care, the Federal government subsidizes certain hospitals that provide large amounts of uncompensated care to uninsured and low-income patients. These so-called “disproportionate share” (DSH) payments are not directly tied to reimbursement for specific services, and they totaled $13B and $12B through the Medicare and Medicaid programs in 2016, respectively. However, existing methods for allocating safety-net subsidies depend wholly or in -part on the Medicaid share of hospital inpatient care. As Medicaid has become more ubiquitous, more than tripling between the 1970’s and 2014 participation in safety-net subsidies has grown, even as uncompensated care to uninsured patients has fallen. I use administrative data from Medicare Hospital Cost Reports, the of Health Resources and Services Administration’s 340B provider database, and the Healthcare Cost and Utilization Project’s state-level hospital discharge data to estimate the effect of changes in Medicaid coverage on receipt of safety-net subsidies. I leverage two natural experiments to provide quasi-experimental variation in Medicaid coverage unrelated to hospital need for safety-net subsidies. First, I compare Medicaid-based eligibility criteria and safety-net subsidy receipt of hospitals in states that expanded Medicaid under the Affordable Care Act to those that did not before and after 2014. I find that expansion increased Medicaid-covered hospital inpatient stays by 15%, which increased the eligibility criteria by 1.8 pp. The increase in eligibility corresponds to a 10% increase in Medicare DSH payments, and a 6 pp increase in the probability of receive Medicaid DSH payments, and a 5 pp increase participating in 340B. These increases occurred despite a 40% reduction in uncompensated care and a 60% drop in uninsured patients among hospitals in expansion states relative to non-expansion states. Second, I compare hospitals in Tennessee to hospitals in surrounding states before and after Tennessee’s disenrollment of 170,000 individuals from the state’s Medicaid program in 2005. I find that the disenrollment reduced Medicaid inpatient stays by 7% and therefore also reduced Medicaid-based eligibility criteria by 1.8 pp. This reduction in eligibility corresponded to an 8% reduction in Medicare DSH payments, a 7% reduction in 340B participation, and a 4 pp reduction in Medicaid DSH payments. These reductions in safety-net subsidies occurred despite a 46% increase in uninsured discharges. The results of this study suggest that existing studies of the implications of Medicaid expansions also reflect the increased receipt of Federal safety-net subsidies. The study also suggests that Federal safety-net subsidies are poorly targeted to hospitals with large safety-net burden. Although Medicare DSH payment amounts were adjusted to partially reflect uncompensated care in 2014, attempts to introduce safety-net burden into Medicaid DSH payments under the Affordable Care Act have been repeatedly delayed and may never be implemented. Several current policy proposals aim to change introduce safety-net burden into existing eligibility for the 340B program, however all these proposals continue to rely on Medicaid-based eligibility criterion.