Who pays for charity care? The effect of charity care losses on Medicaid supplemental payments to hospitals

Hospitals face substantial shortfalls from uncompensated care patients, and from low reimbursement rates from Medicaid. As a result, it is often argued that these patients are unattractive. However, states make supplemental payments to hospitals through Medicaid DSH and Upper Payment Limits (UPL). States have substantial leeway in how they distribute these source of funds across hospitals, making it possible that the marginal profitability of Medicaid and uncompensated care patients for some hospitals may differ substantially from the average for the state. We examine how much of marginal increases in shortfalls affects DSH/UPL payments to determine what share of the marginal burden of shortfalls falls on hospitals vs state governments. We examine heterogeneity in the responsiveness across hospital characteristics, such as ownership type and baseline shortfalls.