Safety-net hospitals rely on Disproportionate Share Hospital (DSH) payments to help cover uncompensated care costs and underpayments by Medicaid (known as Medicaid shortfalls). The Affordable Care Act (ACA) anticipates that insurance expansions will increase safety-net hospitals’ revenues, and reduces DSH payments accordingly. We examined the impact of the ACA’s Medicaid DSH reductions on California public hospitals’ financial stability by estimating how total DSH costs (uncompensated care costs and Medicaid shortfalls) will change as a result of insurance expansions and the offsetting DSH reductions. Decreases in uncompensated care costs due to the ACA insurance expansion may not match the ACA’s DSH reductions because of the high number of residually uninsured patients, low Medicaid reimbursement, and medical cost inflation. Taking these three factors into account, we estimate that California public hospitals’ total DSH costs will increase from $2.044 billion in 2010 to $2.363 billion in 2019, with unmet DSH costs of $1.381 billion to $1.537 billion.
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