As we all know by now, on June 28, 2012, the U.S. Supreme Court issued its ruling generally upholding the constitutionality of the Affordable Care Act (ACA). For many hospitals, the ruling will be good news. Apart from the societal benefit of having a greater percentage of the nation’s population covered by insurance, the ruling likely will result in a higher percentage of patients treated at our hospitals having the means to pay for that care, either through private insurance or through Medicaid. The picture, however, is not entirely rosy, particularly for hospitals that have a high population of low-income individuals for which they receive Medicaid or Medicare disproportionate share (DSH) payments.

Under the ACA, beginning in 2014, Medicare is to start reducing DSH expenditures by $22 billion dollars over a ten year period. These cuts will eventually reduce each hospital’s current Medicare DSH payments by 75%. Similarly, the statute reduces Medicaid DSH payments by $14 billion dollars over ten years beginning in fiscal year 2014. One operating presumption supporting these cuts was that hospitals would see an increase in their number of insured patients – patients insured through the greater availability of insurance and through Medicaid expansion – and that these newly insured individuals would reduce the need for the DSH payments. For certain hospitals in certain regions, however, that presumption may not fit.