Association for Public Policy Analysis & Management

The Federal government provides a variety of subsidies to hospitals that provide a disproportionate amount of unreimbursed care to low-income and uninsured patients. Eligibility for three of the largest such programs: Medicare and Medicaid disproportionate share hospital payments and 340B drug discounts – are based on Medicaid inpatient volume rather than uninsured volume of uncompensated care. I show that this relationship results in an inverse relationship between demand for safety-net care and receipt of safety-net subsidies. Using the Affordable Care Act Medicaid expansion in 2014 and the TennCare disenrollment in 2005, I show that hospitals are more (less) likely to receive Medicare DSH and 340B subsidies when uncompensated care falls (rises). I show that this relationship reduces the target efficiency of Federal hospital safety-net subsidy programs.