In Building Back Better, Treat Safety Nets with Care

By Chris Denson

On November 19, the U.S. House of Representatives passed the Build Back Better Act on a near party-line vote, after months of negotiations on a bill predicted to cost $2.2 trillion.

One contentious “pay-for” in the bill is severe cuts (12.5%) to the Disproportionate Share Hospital (DSH) program. Created in the early 1980s, the program reimburses “safety-net” hospitals, which provide a large percentage of uncompensated care and are often located in urban centers or rural areas.

Notably, these DSH cuts specifically targeted the 12 states that have not expanded Medicaid under the Affordable Care Act (ACA), including Georgia.

Before the bill’s passage, a group of Congressional Democrats representing non-Medicaid expansion states wrote to House Speaker Nancy Pelosi citing their concerns: “We were not warned of this proposed ‘pay-for’ until updated text was released last week. It was not considered by any of our committees this year.” They added, “The reality is limiting uncompensated care (UC) pools and cutting disproportionate share hospital (DSH) payments is a misguided penalty that puts our most vulnerable constituents at risk.”

Georgia’s entire Democratic Congressional delegation signed a letter expressing concerns with the cuts: 12.5% of Georgia’s federal DSH budget.

Florida Sen. Rick Scott warned that non-expansion states would see a combined cut of $4.2 billion over the next decade for hospitals serving the underserved and uninsured. Georgia stood to lose $42 million in federal funding.

The plan was explored in a report by Brian Blase for the Paragon Health Institute, “Punishing Conservative States: Payment Cuts to Hospitals Where Federal Spending is Already Low.”

“States that have not adopted Medicaid expansion receive far less in federal assistance to finance health care services for the uninsured and low-income populations. The BBB Act would increase these inequities and harm safety-net hospitals in poorer and more conservative states,” Blase wrote.

One rationale for the cuts is the misguided belief that subsidizing coverage through the federal health insurance marketplace for those in the Medicaid coverage gap (incomes under 138% of the federal poverty level) would drastically reduce the level of the underinsured and uninsured.

This folly has played out at the federal level before. The ACA, passed in 2010, included a series of escalating DSH cuts culminating in a $5.6 billion reduction to the program in 2019. This was based on the premise that the ACA would reduce the uninsured to the point that DSH was no longer necessary. This proved so inaccurate, however, that Congress has amended the DSH reductions 13 times since 2012 and most recently delayed their implementation until 2024.

The DSH program is by no means a perfect solution for addressing healthcare inequities. As Blase notes, since the early 1990s, when Congress locked in the current DSH funding formula, it has rewarded states for “gimmicky financing schemes.” Blase proposes merging all Medicaid supplemental programs – such as DSH, Upper Payment Limits and Uncompensated Care pool payments – into one program that would allow for more rational distribution across true state needs.

He further proposes larger reform that “would realign states’ incentives, away from using Medicaid to maximize federal payments and instead toward obtaining the best outcomes and value for program recipients and taxpayers supporting the program.”

As for those calling on Georgia to expand Medicaid? Blase notes that non-expansion states have “kept their programs focused on more vulnerable populations, such as low-income pregnant women, children, seniors, and people with disabilities.”

“Their decisions have been justified. Wait times for appointments, ambulance response times, unnecessary visits to emergency rooms have all significantly increased in Medicaid expansion states, indicating that resources have been redirected away from people who most need care. Medicaid expansion has not been associated with overall improvements in health outcomes.”

Georgia Public Policy Foundation President and CEO Kyle Wingfield explained earlier this year how ancillary benefits cited by proponents of Medicaid expansion, such as increased healthcare jobs and saving rural hospitals, did not materialize even as the number of Medicaid recipients expanded over the past decade.

The Senate Finance Committee has removed DSH cuts from its draft of the legislation. However, considering negotiations are ongoing on how to pay for BBB these cuts could always reemerge.

It bears mentioning that Georgia continues at an impasse with the Biden administration’s Center for Medicare and Medicaid Services (CMS) over its Pathways to Access program – approved by the Trump administration – that would reform Medicaid and offer coverage to an estimated 50,000 able-bodied Georgians provided they work or volunteer for 80 hours a month.

Ultimately, federal top-down approaches to healthcare – including DSH cuts that invoke overt bipartisan disapproval – reinforce the need for state-focused health reforms that strengthen healthcare options and put the patient first.


Chris Denson is Director of Policy and Research for the Georgia Public Policy Foundation. Established in 1991, the Foundation is a trusted, independent resource for voters and elected officials. The Foundation provides actionable solutions to real-life problems by bringing people together. Nothing written here is to be construed as necessarily reflecting the views of the Georgia Public Policy Foundation or as an attempt to aid or hinder the passage of any bill before the U.S. Congress or the Georgia Legislature.

© Georgia Public Policy Foundation (November 19, 2021) Permission to reprint in whole or in part is hereby granted, provided the author and his affiliations are cited.