Disproportionate Share Hospital (DSH) Payments

How It Works

Disproportionate Share Hospital (DSH) payments are federal supplemental payments that compensate hospitals serving high volumes of Medicaid and low-income Medicare patients for the uncompensated care they provide. The program exists in two parallel forms. Medicare DSH payments, administered under IPPS, use a two-part formula: hospitals with DSH adjustment percentages above a threshold (calculated from the sum of the Medicare Supplemental Security Income percentage and the Medicaid inpatient percentage) receive empirical DSH totaling about $8 billion annually, plus uncompensated care DSH distributed from a national pool that was approximately $6.8 billion in FY2025. Medicaid DSH payments are separate, jointly financed state-federal supplemental payments that totaled approximately $20 billion federal Medicaid in FY2024 with federal DSH allotments set annually by state. Large safety-net systems receive hundreds of millions in annual DSH payments. NYC Health + Hospitals, Cook County Health, LA County + USC Medical Center, Parkland Health (Dallas), Grady Health System (Atlanta), and similar public safety-net systems depend on DSH for 15-30% of total revenue. DSH eligibility also drives 340B drug pricing program eligibility for most hospital categories, since DSH adjustment percentages above specific thresholds qualify hospitals for 340B covered entity status. The ACA originally scheduled Medicaid DSH payment reductions beginning FY2014, premised on the assumption that expanded coverage would reduce uncompensated care and make DSH less necessary. These cuts have been repeatedly delayed by Congress; the current schedule, last modified by the Consolidated Appropriations Act of 2023, delays the start of cuts to FY2026 with $8 billion annual reductions phased in over four years. Hospital lobbying groups including the American Hospital Association and Association of American Medical Colleges consistently advocate for additional delays, arguing that uncompensated care remains elevated and that the 10 non-expansion states have particularly acute dependence on DSH.

Related Terms

• Medicaid, A joint federal-state health insurance program for low-income individuals, paying hospitals less than Medicare and covering over 80 million Americans as of 2025.
• 340B Hospital, A hospital that qualifies for the federal 340B Drug Pricing Program, purchasing outpatient drugs at prices approximately 25-50% below wholesale acquisition cost to support care for low-income and uninsured patients.
• Nonprofit Hospital, A hospital organized as a 501(c)(3) tax-exempt entity, making up about 58% of U.S. community hospitals, that reinvests revenue into the community in exchange for federal, state, and local tax exemptions.
• Teaching Hospital, A hospital affiliated with a medical school that trains resident physicians, typically larger, more complex, and higher-cost than community hospitals, but often offering more advanced care.
• Charity Care (Financial Assistance), Free or reduced-cost hospital care provided to patients who cannot afford to pay, required of all 501(c)(3) nonprofit hospitals under IRS Section 501(r) and frequently offered voluntarily by for-profit and government hospitals.