Disproportionate Share Hospital (DSH)

Key facts

Medicare DSH basis

Section 1886(d)(5)(F) of the Social Security Act; 42 CFR 412.106

Medicaid DSH basis

Section 1923 of the Social Security Act

Medicare DSH patient percentage

SSI fraction plus Medicaid fraction

340B threshold, general acute care

Medicare DSH adjustment percentage above 11.75 percent

Medicare split since FY2014

25 percent traditional DSH; 75 percent, adjusted, as uncompensated care payments

What is a disproportionate share hospital?

Hospitals that treat many uninsured and low-income patients face higher costs and collect less revenue. Congress created disproportionate share payments to support these safety-net hospitals, first requiring state Medicaid programs to account for them in 1981 and then adding a Medicare DSH adjustment in the mid-1980s.

The phrase DSH hospital is ambiguous. It can mean a hospital that receives Medicare DSH payments, one that receives Medicaid DSH payments from its state, or one that meets the Medicare DSH percentage required for 340B eligibility. These groups overlap but are not identical.

How DSH payments are calculated

The two programs use different formulas and funding:

The Affordable Care Act also scheduled reductions to Medicaid DSH allotments, which Congress has delayed several times.

• Medicare DSH: the disproportionate patient percentage adds the share of Medicare Part A inpatient days for patients also entitled to Supplemental Security Income (SSI) to the share of total inpatient days for patients on Medicaid but not Medicare. Hospitals above qualifying thresholds receive an add-on to IPPS payments.
• Uncompensated care payments: since fiscal year 2014, under the Affordable Care Act, Medicare pays 25 percent of the traditional DSH amount directly. The remaining 75 percent, reduced to reflect changes in the uninsured rate, is distributed by each hospital's share of uncompensated care, measured using Worksheet S-10 of the cost report.
• Medicaid DSH: each state receives a federal allotment and decides which hospitals qualify and how much they receive, subject to a hospital-specific limit based on unreimbursed costs of Medicaid and uninsured patients.

Why DSH status matters

DSH percentages drive both hospital revenue and drug pricing program eligibility:

• 340B eligibility: general acute care and children's hospitals need a Medicare DSH adjustment percentage above 11.75 percent, sole community hospitals and rural referral centers need at least 8 percent, and Critical Access Hospitals have no DSH requirement.
• The DSH percentage is a practical proxy for safety-net status when analyzing payer mix, uncompensated care or community benefit.
• Market access teams model 340B exposure hospital by hospital, starting with the DSH percentage reported in Medicare cost reports.
• Medicaid DSH distributions vary widely by state, so safety-net finances cannot be compared nationally without state context.