Disproportionate Share Hospital Subsidies for Treating the Uninsured

Abstract

Federal, state, and local governments provide substantial subsidies to so-called "safety-net" hospitals, in part, to offset the loss in revenue associated with providing a disproportionate share (DSH) of care to low-income and uninsured patients, with the goal to improve access to care for uninsured and ensure affordable care for them. We investigate the targeting of DSH subsidies and their impact on pricing to uninsured patients in acute care for-profit and nonprofit hospitals. The study sample includes all California acute care private hospitals that report comparable financial data to the State and covers 2001 through 2006 time period. Relative price to uninsured is measured as the percent difference of uninsured payments from Medicare payments, by comparing percent of charges paid by uninsured as a group to percent of charges paid by Medicare within each hospital. Sixty-five percent of all uninsured care among private hospitals is provided by nonprofit hospitals that are non-DSH. Although, uninsured patients still pay lower prices at DSH hospitals compared with non-DSH hospitals of the same ownership category, this difference reduced substantially over time. For-profit DSH hospitals serve a smaller share of uninsured patients and charge higher uninsured prices than nonprofit non-DSH hospitals but receive the highest DSH subsidy as a percent of their revenues. In California, DSH subsidies do not target highest providers of care to uninsured and in 2005-2006 have had very small potential as a mechanism of reducing prices to uninsured.