August 2009 —

Abstract: Congress and the Obama administration are considering redirecting federal spending on the Medicaid disproportionate-share (DSH) program to help pay for health reform. In this paper, we propose linking federal Medicaid DSH funding to state-level Medicaid enrollment or uninsured populations, or both.
This approach could produce as much as $44 billion in federal savings over time without exposing hospitals to uncertain or across-the-board spending cuts. It could also gradually address state variations in Medicaid DSH funding. We also offer ideas to ensure that DSH spending is more directly connected than it is now to improvements in care for vulnerable populations.

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