Freestanding Children's Hospitals Face Large Financial Losses for Medicaid Patients

Freestanding children’s hospitals had the largest financial losses for pediatric inpatients covered by Medicaid, and may be unable to offset reductions in federal Disproportionate Share Hospital (DSH) payments resulting from caring for fewer uninsured patients because of the expansion of health insurance under the Affordable Care Act (ACA), according to a study published in JAMA Pediatrics.

DSH payments help hospitals recover uncompensated costs of caring for Medicaid patients and uninsured patients, and with ACA-mandated reductions in DSH payments in anticipation of fewer uninsured patients (and therefore decreased uncompensated care) there are concerns that the financing of pediatric healthcare may be uniquely affected by DSH reductions. As the study authors explain, because few hospitalized children are uninsured and many have Medicaid coverage, reductions in DSH payments may create extensive Medicaid financial losses for hospitals serving large numbers of children.

“The financing of pediatric health care may be uniquely affected by DSH reductions,” the authors explained.

Jeffrey D. Colvin, MD, JD, of the University of Missouri, Kansas City, and colleagues analyzed Medicaid-insured hospital discharges for patients under age 20 from 23 states in a 2009 database of 1485 hospitals and 843,725 Medicaid discharges. They measured hospital financial losses from inpatient care of Medicaid-insured children (defined as reimbursement minus the cost of care) and compared them across hospital types.

They reported that freestanding children’s hospitals had a higher median number of Medicaid-insured discharges per hospital (4082) compared with non-children’s hospital teaching hospitals (674) and non-children’s hospital nonteaching hospitals (161). Freestanding children’s hospitals also had the largest median Medicaid losses from pediatric inpatient care per hospital (approximately $9.7 million per hospital). Non-children’s (teaching) hospitals had smaller Medicaid losses (approximately $204,000 per hospital) and non-children’s (nonteaching) hospitals had still smaller losses (about $28,000 per hospital).

The investigators found that DSH payments to freestanding children’s hospitals helped defray Medicaid losses by about half. It is unknown if the reductions in DSH payments will affect the ability of children’s hospitals to continue outreach across regions to serve higher-complexity patients regardless of payer, they said. Although some hospitals may be able to offset Medicaid losses through cross-subsidization of more profitable areas derived from the care of privately insured patients, they said, the ability of each hospital to offset Medicaid losses that way depends on their market position, ability to negotiate with private insurers, and case mix.

“Given the few uninsured children at children’s hospitals, those hospitals are unlikely to offset DSH payment reductions through the increased enrollment of uninsured patients into either public or private insurance,” authors concluded. “Children’s hospitals serve many of the most complex patients. In this era of healthcare reform, we need to consider how these payment changes may affect the unique patient populations served by children’s hospitals.”