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Original Investigation
November 2016

Financial Loss for Inpatient Care of Medicaid-Insured Children

Author Affiliations
  • 1Department of Pediatrics, School of Medicine, Children’s Mercy Hospitals and Clinics, University of Missouri–Kansas City
  • 2Children’s Hospital Association, Overland Park, Kansas
  • 3Division of General Pediatrics, Department of Medicine, Boston Children’s Hospital, Boston, Massachusetts
  • 4Department of Pediatrics, Harvard Medical School, Boston, Massachusetts
  • 5Department of Family and Community Medicine, University of California, San Francisco
  • 6Department of Pediatrics, University of Cincinnati School of Medicine, Cincinnati Children’s Hospital and Medical Center, Cincinnati, Ohio
  • 7Department of Pediatrics, Perelman School of Medicine, University of Pennsylvania, The Children’s Hospital of Philadelphia, Philadelphia
  • 8Center for Medicare & Medicaid Innovation, Centers for Medicare & Medicaid Services, Baltimore, Maryland
  • 9Department of Pediatrics, University of California, Los Angeles
  • 10Department of Health Policy and Management, University of California, Los Angeles
  • 11RAND Health, RAND Corporation, Santa Monica, California
  • 12Children’s Discovery and Innovation Institute, Mattel Children’s Hospital, University of California, Los Angeles
JAMA Pediatr. 2016;170(11):1055-1062. doi:10.1001/jamapediatrics.2016.1639
Key Points

Question  Do certain types of hospitals have larger financial losses from the care of pediatric inpatients with Medicaid coverage?

Findings  In this cross-sectional analysis, Medicaid financial losses were greater in freestanding children’s hospitals compared with other hospital types (eg, non–children’s hospitals). Federal Disproportionate Share Hospital (DSH) payments, which compensate hospitals for financial losses acquired from uninsured and Medicaid-insured patients, decreased those financial losses at freestanding children’s hospitals by approximately half.

Meaning  Because of high financial losses from Medicaid, freestanding children’s hospitals are unlikely to offset decreased DSH payments from caring for fewer patients who are uninsured.


Importance  Medicaid payments tend to be less than the cost of care. Federal Disproportionate Share Hospital (DSH) payments help hospitals recover such uncompensated costs of Medicaid-insured and uninsured patients. The Patient Protection and Affordable Care Act reduces DSH payments in anticipation of fewer uninsured patients and therefore decreased uncompensated care. However, unlike adults, few hospitalized children are uninsured, while many have Medicaid coverage. Therefore, DSH payment reductions may expose extensive Medicaid financial losses for hospitals serving large absolute numbers of children.

Objectives  To identify types of hospitals with the highest Medicaid losses from pediatric inpatient care and to estimate the proportion of losses recovered through DSH payments.

Design, Setting, and Participants  This retrospective cross-sectional analysis evaluated Medicaid-insured hospital discharges of patients 20 years and younger from 23 states in the 2009 Kids’ Inpatient Database. The dates of the analysis were March to September 2015. Hospitals were categorized as freestanding children’s hospitals (FSCHs), children’s hospitals within general hospitals, non–children’s hospital teaching hospitals, and non–children’s hospital nonteaching hospitals. Financial records of FSCHs in the data set were used to estimate the proportion of Medicaid losses recovered through DSH payments.

Main Outcomes and Measures  Hospital financial losses from inpatient care of Medicaid-insured children (defined as the reimbursement minus the cost of care) were compared across hospital types. For our subsample of FSCHs, Medicaid-insured inpatient financial losses were calculated with and without each hospital’s DSH payment.

Results  The 2009 Kids’ Inpatient Database study population included 1485 hospitals and 843 725 Medicaid-insured discharges. Freestanding children’s hospitals had a higher median number of Medicaid-insured discharges (4082; interquartile range [IQR], 3524-5213) vs non–children’s hospital teaching hospitals (674; IQR, 258-1414) and non–children’s hospital nonteaching hospitals (161; IQR, 41-420). Freestanding children’s hospitals had the largest median Medicaid losses from pediatric inpatient care (−$9 722 367; IQR, −$16 248 369 to −$2 137 902). Smaller losses were experienced by non–children’s hospital teaching hospitals (−$204 100; IQR, −$1 014 100 to $14 700]) and non–children’s hospital nonteaching hospitals (−$28 310; IQR, −$152 370 to $9040]). Disproportionate Share Hospital payments to FSCHs reduced their Medicaid losses by almost half.

Conclusions and Relevance  Estimated financial losses from pediatric inpatients covered by Medicaid were much larger for FSCHs than for other hospital types. For children’s hospitals, small anticipated increases in insured children are unlikely to offset the reductions in DSH payments.