Impact of the Medicare Disproportionate Share Hospital Payment Cap on Urban and Rural Hospitals


The Medicare Disproportionate Share Hospital (DSH) payment adjustment is intended to compensate those hospitals serving a disproportionate number of low-income patients. Begun in 1986, the program was amended by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 to impose a 12% cap on the payment, with exception for large hospitals and Rural Referral Centers. This policy brief describes the number and location of urban and rural hospitals affected by that cap. Analysis of Fiscal Year 2017 Centers for Medicare & Medicaid Services Cost Report data showed that less than half (48.1%) of inpatient prospective payment system hospitals met location and bed size criteria for the cap. Of those, 13% had operating DSH percentages exceeding 12% and were affected by the cap. More rural hospitals were affected by the cap than urban, both nominally and as a percentage of eligible hospitals.

RUPRI Center for Rural Health Policy Analysis
Paula Weigel, Fred Ullrich, Keith Mueller