In a landmark decision, the U.S. Supreme Court has upheld federal limits on Disproportionate Share Hospital (DSH) payments, a move that could have serious financial consequences for safety-net hospitals across the country.
This ruling reaffirms the government’s authority to regulate Medicaid payments and raises concerns about access to care for low-income and vulnerable populations. As hospitals continue to grapple with rising costs and staffing shortages, this development adds another layer of complexity to their financial sustainability.
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What Are DSH Payments?
Disproportionate Share Hospital (DSH) payments are supplemental funds provided by Medicaid and Medicare to hospitals that serve a high number of low-income and uninsured patients. These hospitals—often referred to as “safety-net hospitals”—rely on DSH payments to offset the uncompensated costs of providing care to patients who are unable to pay.
Key Facts About DSH Payments:
- Authorized under the Social Security Act, Section 1923 (for Medicaid)
- Designed to prevent closures of hospitals serving at-risk communities
- Based on a formula that considers the proportion of Medicaid and uninsured patients treated
- Funded jointly by state and federal governments
- Often a critical lifeline for rural, public, and inner-city hospitals
According to the American Hospital Association (AHA), DSH payments amount to billions of dollars annually and are instrumental in keeping hospitals afloat, especially in states with lower Medicaid reimbursement rates.
Background of the Legal Case
The case in question, Health and Hospital Corporation of Marion County v. Becerra, originated from a long-standing dispute between healthcare providers and the federal government regarding how DSH payments are calculated.
At the core of the dispute was the Centers for Medicare and Medicaid Services (CMS)’s 2017 rule, which altered the formula for calculating DSH payments. Specifically, the rule required hospitals to include payments from private insurers and Medicare when reporting uncompensated care costs. This adjustment effectively reduced the amount of DSH funding hospitals could claim.
Legal Challenge Timeline:
- 2017 – CMS finalizes the rule to change DSH calculation methods
- Multiple lawsuits are filed by hospitals and hospital associations
- Lower courts offer mixed rulings, with some siding with hospitals
- Appeal reaches the Supreme Court for a final verdict on CMS’s authority
- 2025 Supreme Court ruling upholds CMS authority to implement the revised formula
Details of the Supreme Court Ruling
On September 25, 2025, the Supreme Court, in a 6-3 decision, ruled in favor of the Department of Health and Human Services (HHS), affirming that CMS has the statutory authority to impose limits on how hospitals calculate their DSH-related costs.
Key Points from the Ruling:
- CMS acted within its regulatory authority under the Medicaid Act
- Including payments from Medicare and private insurance does not violate the statutory intent of DSH payments
- The revised formula reflects a more accurate picture of hospitals’ uncompensated costs
- Hospitals are not entitled to DSH payments for costs already reimbursed by other payers
The Court emphasized administrative deference under the Chevron doctrine, allowing federal agencies discretion when interpreting ambiguous statutes, as long as their interpretation is reasonable.
Implications for Hospitals
The ruling has significant implications for the hospital industry, especially those that rely heavily on DSH funding.
1. Reduced Funding for Safety-Net Hospitals
Hospitals that serve a high number of Medicaid and uninsured patients may now receive substantially less funding, as reimbursements from other sources will lower their uncompensated care totals.
2. Financial Strain on Vulnerable Institutions
Many public, rural, and urban hospitals already operate on razor-thin margins. The reduction in DSH payments could force:
- Service line reductions (e.g., mental health, maternity, trauma)
- Staff layoffs or hiring freezes
- Deferred maintenance or facility closures
- Increased cost-shifting to privately insured patients
3. Greater Disparities in Access to Care
Lower-income and marginalized populations may face longer wait times, fewer available services, or even complete loss of local care options as hospitals scale back operations.
Healthcare Industry Response
American Hospital Association (AHA)
The AHA issued a strong statement condemning the decision, saying:
“Today’s ruling undermines the financial stability of hospitals that serve our most vulnerable citizens. It jeopardizes access to care for millions of low-income Americans and places undue strain on already overstretched health systems.”
National Association of Public Hospitals and Health Systems (NAPH)
NAPH warned that urban safety-net hospitals could lose tens of millions in annual funding, accelerating closures and reducing emergency room capacity.
State Medicaid Agencies
Some state health officials welcomed the ruling, arguing it provides greater consistency and accountability in Medicaid payment structures. However, others expressed concern about being forced to fill funding gaps from limited state budgets.
Policy Implications and Next Steps
The Supreme Court decision underscores the ongoing tension between federal cost containment and hospital solvency. With healthcare expenditures continuing to rise, policymakers must now grapple with:
- Balancing fiscal responsibility with healthcare equity
- Updating Medicaid and Medicare payment policies to reflect modern realities
- Addressing gaps in coverage and affordability for low-income populations
Potential Policy Responses:
- Legislative Reforms:
Congress may attempt to amend the Social Security Act to clarify DSH funding criteria or provide additional relief for hospitals hit hardest by the changes. - State-Level Innovation:
States could explore Medicaid waivers or state-funded safety-net programs to supplement lost DSH revenue. - Public-Private Partnerships:
Some systems may pursue collaborations with private insurers, philanthropy, or nonprofit foundations to continue delivering uncompensated care. - Hospital Consolidation:
Smaller, struggling hospitals may look to merge with larger systems to gain financial stability—although this could further reduce care access in underserved areas.
The Broader Impact on Healthcare Access
This ruling is more than a financial technicality—it reflects a growing shift in healthcare policy that emphasizes efficiency and cost reduction over broad safety-net support. Critics argue this could deepen the inequality in healthcare delivery, particularly in:
- Rural communities where one hospital may serve several counties
- Inner cities where poverty rates and uninsured populations are highest
- States that did not expand Medicaid under the Affordable Care Act (ACA)
Unless alternative funding mechanisms are implemented, the DSH payment limits may result in:
- Fewer hospitals
- Reduced specialty services (OB/GYN, psychiatric, pediatrics)
- Longer distances to care
- Lower patient satisfaction and worse health outcomes
Frequently Asked Question
What are DSH payments and why are they important to hospitals?
Disproportionate Share Hospital (DSH) payments are supplemental funds provided by Medicaid (and in some cases Medicare) to hospitals that treat a large number of low-income, uninsured, or underinsured patients. These payments help cover the costs of uncompensated care and are crucial for the financial survival of safety-net hospitals, which often operate with very narrow margins.
What did the Supreme Court rule regarding DSH payment limits?
In 2025, the U.S. Supreme Court upheld a CMS regulation that limits how hospitals calculate their DSH payments. The ruling allows the federal government to require hospitals to include Medicare and private insurance payments when reporting their uncompensated care costs. This change effectively reduces the amount of DSH funding hospitals can receive.
Why is this ruling a challenge for hospitals?
The ruling reduces DSH payments, meaning less federal support for hospitals that serve high volumes of Medicaid and uninsured patients. Many of these hospitals are already under financial pressure. The loss of funding may result in cutbacks in services, layoffs, or even closures, particularly in rural and urban safety-net facilities.
Which hospitals are most affected by the ruling?
The ruling impacts hospitals that rely heavily on Medicaid and DSH funding, including:
- Public hospitals
- Rural hospitals
- Urban safety-net hospitals
- Non-profit community hospitals
These institutions serve high-risk populations and are least equipped to absorb funding reductions.
What does this mean for patients and healthcare access?
Reduced DSH payments could lead to:
- Fewer services (e.g., trauma care, maternity wards)
- Longer wait times
- Hospital closures, especially in underserved areas
- Worsening health disparities for low-income, uninsured, and marginalized communities
Can Congress or states respond to this decision?
Yes. Congress could pass legislation to amend the Medicaid Act and protect or restore DSH funding. States might also explore Medicaid waivers or other supplemental funding strategies to support safety-net hospitals. However, any such changes would require time and political will.
How does this affect the future of healthcare funding?
The ruling sets a precedent for greater regulatory control over Medicaid payment formulas, emphasizing cost control over blanket support. It may push healthcare systems to seek alternative funding, increase reliance on private insurance, or further consolidate to survive in a changing financial landscape.
Conclusion
The Supreme Court’s decision to uphold DSH payment limits marks a turning point for hospitals that care for the nation’s most vulnerable patients.
While the ruling may align with federal goals of reducing overpayments and increasing transparency, it also risks destabilizing critical healthcare infrastructure in already underserved areas.
Hospitals, policymakers, and advocacy groups must now work together to identify new solutions that ensure access to care is not sacrificed in the name of regulatory efficiency. With billions of dollars and countless patient outcomes at stake, the pressure is on to adapt—and fast.