CMS and states jointly administer the Medicaid program and generally share in the financing of Medicaid payments according to a formula established in law. States may deliver health care services to Medicaid beneficiaries through fee-for-service payments to participating providers or through Medicaid managed care plans, through which states pay plans a fixed amount per beneficiary—typically per member per month—to provide a specific set of Medicaid-covered services. States finance their share (nonfederal share) of Medicaid program spending in a variety of ways, including state funds, such as state general funds appropriated to the state Medicaid program and funds collected through taxes levied on health care providers. Within limits, however, states may also use other sources of funds—including funding from local government providers, such as county-owned or county-operated hospitals, or from local governments on behalf of government providers. Federal law allows states to finance up to 60 percent of the nonfederal share of Medicaid payments from local government funds. State Medicaid agencies have two primary mechanisms for making payments to hospitals—base payments and supplemental payments— and both can qualify for federal matching funds. Base payments are payments to hospitals for specific services provided to Medicaid beneficiaries through both fee-for-service and managed care. These payments are set by state Medicaid programs or managed care plans, and can vary considerably across states for the same services. Payment amounts for the same service may also vary within a state. States’ Medicaid base payments are typically lower than other payers’, and often are below the costs of providing services. Supplemental payments are typically lump sum payments made to hospitals that are not specifically tied to an individual’s care. Like all Medicaid payments, supplemental payments are required to be economical and efficient. Supplemental payments can be grouped into two broad categories: (1) DSH payments, which states are required to make to certain hospitals; and (2) non-DSH payments, which states are allowed to make, but are not required by law. DSH payments are designed to help offset uncompensated care costs for hospitals serving a high proportion of Medicaid beneficiaries and uninsured low-income patients. In fiscal year 2017, total DSH payments to hospitals nationally were about $18.1 billion. States may distribute DSH payments to any eligible hospital in the state; however, under federal law, the total amount of DSH payments to a hospital must not be more than the total amount of uncompensated care provided by the hospital (both the Medicaid shortfall and uncompensated costs for care for the uninsured). To be eligible for a DSH payment, hospitals must meet minimum requirements such as having a Medicaid inpatient utilization rate of at least 1 percent. States are required to make DSH payments to certain hospitals—termed deemed-DSH hospitals—with a Medicaid inpatient utilization rate of at least one standard deviation above the mean for hospitals in the state that receive Medicaid payments, or a low-income utilization rate that exceeds 25 percent. The amount of federal funding each state may claim for DSH payments is limited by federal law. Since fiscal year 1993, each state is subject to a federal DSH allotment that establishes the maximum federal funding available for the payments. A state’s DSH allotment is largely based on its fiscal year 1992 DSH spending, although Congress has since made several incremental adjustments to these allotments. Ultimately, however, the states that spent the most in fiscal year 1992 continue to have the largest allotments; conversely, the states that spent the least in fiscal year 1992 have the smallest allotments. States may choose to make DSH payments to institutions for mental disease (IMD), which can include state-operated psychiatric hospitals. Prior to 1997, a large share of DSH payments went to state-operated IMDs, where they were used to pay for services not covered by Medicaid and any remaining funds were returned to the state treasuries. In general, Medicaid excludes fee-for-service base payments for beneficiaries aged 21-64 who are residents of IMDs—called the IMD exclusion—and using DSH payments allowed states to support the costs of IMDs. In 1997, Congress restricted the total amount of DSH payments a state could make to IMDs as a group by establishing an annual limit on payments to IMDs for each state. Any unspent funds within the IMD-designated limit can be used for other hospital types. Non-DSH payments include four types of supplemental payments that states may make, but are not required to do so, to hospitals and other providers. Medicaid upper payment limit (UPL) payments are lump-sum payments that are made in addition to fee-for-service base payments. The UPL is a limit or ceiling on the amount of a state’s Medicaid payments for which the federal government will match spending. The UPL is based on the difference between Medicaid fee-for-service base payments and an estimate of what Medicare would pay for comparable services. The UPL is not a hospital-specific limit, but is applied in the aggregate across certain categories of providers. States have some flexibility in deciding which hospitals will receive a UPL payment, and how to allocate UPL payments among hospitals. In fiscal year 2017, UPL payments totaled nearly $13 billion. Uncompensated care pool payments are payments that some states make to hospitals specifically for uncompensated care costs in conjunction with section 1115 demonstration waivers and pilot projects for which they have received approval from the Secretary of HHS. Specifically, section 1115 of the Social Security Act authorizes the Secretary of HHS to waive certain federal Medicaid requirements and allow costs that would not otherwise be eligible for federal matching funds for experimental, pilot, or demonstration programs that, in the Secretary’s judgment, are likely to assist in promoting Medicaid objectives. States have received approval to make supplemental payments for hospital uncompensated care in their Medicaid programs. In fiscal year 2017, states reported total spending of about $8 billion through uncompensated care pools. Delivery system reform incentive payment (DSRIP) programs, which have also been authorized under section 1115 demonstrations, allow states to make supplemental payments to providers engaging in various improvement projects that align with state delivery system reform objectives. Examples of reform objectives include improving care for patients with specific conditions or increasing capacity. In fiscal year 2017, DSRIP program payments totaled about $7.3 billion. Graduate medical education payments help support teaching hospitals, and can include teaching costs, such as physician resident salaries, though states are not required to make such payments to teaching hospitals. States have significant flexibility in designing and administering these payments; however, the payments are subject to the UPL. In fiscal year 2017, Medicaid graduate medical education payments totaled about $2 billion. Effective January 1, 2014, PPACA allowed states to expand Medicaid eligibility to certain non-pregnant, non-elderly individuals. PPACA also required a phased reduction in DSH allotments to states, reflecting the expectation that the number of uninsured individuals would decline—and so would hospital spending on uncompensated care. As of May 2019, there were 37 “expansion states”—those states that chose to expand Medicaid eligibility—and 14 “non-expansion states”—those that did not choose to expand Medicaid. Congress has delayed the reduction in DSH allotments several times. The reductions are scheduled to begin in fiscal year 2020. Between 2013 and 2014, both expansion and non-expansion states reported different degrees of change in care for the uninsured and Medicaid shortfall. In particular, MACPAC reported that between 2013 and 2014, the year in which most state Medicaid expansions took effect, expansion states’ uncompensated care costs for the uninsured declined by $2.2 billion (19 percent), while non-expansion states’ uncompensated care costs for the uninsured increased by $0.6 billion (5 percent). During the same period, expansion states’ Medicaid shortfall increased by $2.2 billion (36 percent), and non-expansion states’ Medicaid shortfall increased by $1.8 billion (546 percent). States’ use of supplemental payments has grown in recent decades, partly due to the flexibility supplemental payments provide. This flexibility is twofold: supplemental payments provide states with flexibility in financing the nonfederal share of supplemental payments, and flexibility to target the payments to specific hospitals or types of hospitals. Total supplemental payments to hospitals have grown over time, while states’ base payments have often been frozen or reduced. Congress imposed limits on DSH spending in the 1990s, and since then states’ use of non-DSH payments has grown. Between fiscal year 2000 and fiscal year 2017, DSH payments increased about 16 percent, from $15.6 billion to $18.1 billion. In prior work, we reported that in fiscal year 2006 state Medicaid agencies made at least $6.3 billion in non-DSH payments, though the exact amounts are unknown, because states did not report all their payments to CMS. By fiscal year 2017, the amount of non-DSH payments had increased to $30.4 billion. Both uncompensated care pool payments and DSRIP programs are relatively new types of non-DSH payments, and thus contributed to the overall increase in supplemental payments. In prior work, we reported that, as of February 2017, CMS authorized nearly $38.7 billion in DSRIP spending nonconsecutively over 2011 to 2022 in four states with the largest DSRIP programs. Our prior work found that new or increased supplemental payments helped mitigate the increasing gap between Medicaid base payments and hospital costs. While supplemental payments increased, the number of states reducing or freezing base payments to hospitals has increased, in part, because states reported challenges paying the nonfederal share with state general funds. Our work found that from 2008 to 2011, across all providers, the number of states making at least one base payment reduction grew from 13 to 34, while the number of states increasing at least one base payment fell over the same period. Across all 4 years, states most frequently reported reducing base payments for hospitals. The Kaiser Family Foundation’s annual survey data shows the trend continued in more recent years. Specifically, over half of states froze or reduced inpatient hospital base payments each fiscal year from 2011 to 2018, ranging from a low of 28 states in 2011 and 2018, to a high of 39 states in 2012. (See table 1.) In a September 2018 study of five states, MACPAC found that hospitals and state Medicaid officials often prefer increases to supplemental payments rather than increases to base payments, because supplemental payments come with more predictability. MACPAC found that all five states reported reducing hospital base payments from 2007 to 2011. After 2011, all five states kept base payments frozen with no adjustment for inflation. As a result, base payments to hospitals in these states were lower in 2018 relative to other payers and hospital costs. To address the growing gap between base payments and hospital costs, states collaborated with hospitals to establish or increase supplemental payments. In the five states, supplemental payments ranged from 18 percent to 61 percent of total hospital payments. More often than with base payments, states have relied on sources other than state general funds to finance the nonfederal share of supplemental payments. For example, states may receive funds for the nonfederal share of supplemental payments through taxes levied on health care providers. (See fig. 1.) In previous work, we found that funds from local governments and health care providers constituted about 50 percent of the nonfederal share for DSH and non-DSH payments in fiscal years 2008 through 2012. In contrast, funds from local governments and health care providers constituted approximately 30 percent of base payments during the same time period. The MACPAC study of five states also found that states and hospitals preferred supplemental payments, because hospitals can track the extent to which their tax assessments are recouped through supplemental payments. In a July 2014 report, we found that the number of states relying on provider taxes increased, and that provider tax revenues were then used for the nonfederal share of supplemental payments. In particular, the total number of provider taxes increased from 119 taxes in 42 states in 2008 to 159 taxes in 47 states in 2012—a 34 percent increase. Kaiser Family Foundation data show this trend has continued. According to state survey data, the number of states using inpatient hospital provider taxes has steadily increased from fiscal year 2011 to 2018, ranging from a low of 34 states in 2011, to a high of 42 states in 2017 and 2018. (See table 2.) Supplemental payments provide states with flexibility that allows them to address states’ goals by targeting payments to particular hospitals or hospital types, such as public hospitals or teaching hospitals. States may choose to target supplemental payments to hospitals that may not have the highest uncompensated care costs. Our prior work found some states’ DSH payments were not proportionally targeted to hospitals with the highest uncompensated care costs, which DSH payments are designed to address. Based on our prior analysis of annual hospital-specific 2010 DSH data, we reported that in 30 of 42 states, hospitals receiving the largest share of state DSH payments did not provide the largest share of total uncompensated care. Moreover, our prior review of the independent DSH audits found that 41 states made DSH payments to 717 hospitals that exceeded the individual hospitals’ uncompensated care costs as calculated by the auditors, 9 states did not accurately calculate the uncompensated care costs of 206 hospitals in those states for purposes of making DSH payments, and 15 states made DSH payments to a total of 58 hospitals that either did not retain their DSH payments or were not qualified to receive them. States’ criteria for identifying eligible DSH hospitals and how much funding they receive vary, but were often related to hospital ownership, hospital type, and geographic factors. Our prior work found that 2006 DSH payments to individual hospitals varied widely, ranging from 1 cent to about $395 million. For example, California reported both the lowest and highest 2006 DSH payment amounts; the state made a total of only $160 in DSH payments to 96 private hospitals and paid $2 billion in DSH payments to 51 government hospitals. Based on our analysis of 2014 DSH audits, several states targeted DSH payments to certain hospitals and hospital types, including the following: Public hospitals: States targeting nearly all (93 percent or higher) of their DSH funding to public hospitals included Arkansas (99 percent), California (100 percent), Illinois (99 percent), Iowa (93 percent), Maine (100 percent), and Washington (97 percent). Nonprofit hospitals: Nebraska targeted 98 percent of its DSH funding to nonprofit hospitals. High-teaching hospitals: Arkansas targeted 98 percent of DSH funding to high-teaching hospitals, defined as teaching hospitals with an intern-and-resident-to-bed ratio of 0.25 or greater. IMDs: Maine makes DSH payments to the two state-run IMDs. In 2014, 18 states directed their entire IMD-designated DSH limit to IMDs. (For additional information on DSH payments to IMDs, see table 9 in app. II). Similarly, states can target UPL payments to certain hospitals. We and the HHS Office of the Inspector General have reported that some states concentrated these payments to a small number of providers. Our work has highlighted a number of concerns about the use of non- DSH payments from various perspectives, highlighting the need for transparent reporting, ensuring expenditures meet Medicaid purposes, and concerns regarding arrangements that shift costs from the states to the federal government. For example, in November 2012, we recommended that Congress consider requiring CMS to improve the transparency of and accountability for non-DSH payments by requiring facility-specific payment reporting and annual audits. The report noted that the annual DSH reports and audits that states began submitting in 2010 were important steps toward improving transparency and accountability for Medicaid DSH payments; however, similar information is lacking for non-DSH payments. Moreover, the report stated that the limited information available on non-DSH payments shows that a large share of these payments are paid to a small number of hospitals; when these payments are combined with Medicaid base payments, hundreds of hospitals may be receiving Medicaid payments well in excess of their actual costs of providing Medicaid services. As of March 2019, Congress has not taken any action, but CMS announced in fall 2018 that it was planning a proposed rule on supplemental payments that, if finalized, would improve transparency by requiring states to provide CMS with certain information on Medicaid supplemental payments. The agency plans to release the proposed rule for comment by fall 2019. In 2014, we recommended that CMS develop a data collection strategy ensuring states report accurate and complete data on all sources of funds used to finance the nonfederal share of Medicaid payments. Such data are needed to (1) track trends in financing the nonfederal share, and (2) oversee compliance with current limits on sources of financing the nonfederal share. CMS did not concur with our recommendation, but did acknowledge the agency does not have sufficient data to oversee compliance with the 60 percent limit on local government contributions to a state’s nonfederal share. Among hospitals receiving DSH payments in 2014, total uncompensated care costs varied by state, ranging from $5.9 million in North Dakota to $6.2 billion in New York. In the hospitals, most uncompensated care costs were related to costs to care for uninsured patients, rather than the Medicaid shortfall. For example, among hospitals receiving DSH payments in the 48 states studied: Costs related to care for the uninsured comprised about two-thirds (67.9 percent) of total uncompensated care costs for DSH hospitals. The remaining share of DSH hospital uncompensated care costs consisted of the Medicaid shortfall. In 34 states, costs for care for the uninsured exceeded the Medicaid shortfall. In the remaining 14 states, the Medicaid shortfall exceeded costs related to care for the uninsured. In 15 states, Medicaid paid hospitals more than the total cost of services provided to Medicaid beneficiaries, resulting in a surplus of Medicaid payments—even prior to receiving DSH payments. Termed a negative Medicaid shortfall, these surplus funds can be the result of non-DSH Medicaid supplemental payments. The remaining 33 states had some Medicaid shortfall. (See table 3.) No states had a surplus of total uncompensated care costs. (For additional information on state uncompensated care costs and DSH payments in 2014, see table 10 in app. II.) DSH payments—both the federal and nonfederal share—varied significantly in the amount that each state paid to hospitals in 2014. (See table 4 and fig. 2.) Wyoming made the smallest amount of DSH payments at about $500,000, while New York made the largest amount in DSH payments at $3.5 billion. Differences in DSH payments are largely the result of differences in the state allocations established in law. The proportion of total DSH hospital uncompensated care costs covered by total DSH payments in 2014 also varied considerably by state. Nationally, DSH payments ($18.3 billion) covered about half of DSH hospital uncompensated care costs ($36.2 billion). Nineteen states made DSH payments totaling at least 50 percent of uncompensated care costs for the states’ DSH hospitals, while 29 states made DSH payments of less than 50 percent of uncompensated care costs for the states’ DSH hospitals. (See table 5.) Four states (California, Illinois, Maryland, and Missouri) made DSH payments that exceeded aggregate hospital uncompensated care costs. (For additional information on state uncompensated care costs and DSH payments in 2014, see table 10 in app. II.) Among hospitals receiving them, DSH payments accounted for 13.6 percent of total Medicaid payments, nationally, but there was considerable variation across states. For example, DSH payments comprised 96.6 percent of Medicaid payments to DSH hospitals in Maine and 0.7 percent of Medicaid payments to DSH hospitals in Tennessee. In 40 states, DSH payments accounted for less than 20 percent of total Medicaid payments to hospitals, but in 8 states, it exceeded 20 percent. (See table 6.) (For additional information on state Medicaid payments to hospitals, see table 11 in app. II.) Among deemed and non-deemed DSH hospitals, overall deemed-DSH hospitals received larger relative DSH payments compared to non- deemed DSH hospitals. Deemed-DSH hospitals received 69.9 percent of DSH payments in 2014, but carried 51.2 percent of uncompensated care costs, relative to all hospitals receiving DSH payments that year. Each of the 48 states that distributed DSH payments in 2014 had at least one deemed-DSH hospital. (See table 7 for hospital type definitions.) Most of these states (36) provided deemed-DSH hospitals with a greater share of DSH payments relative to their share of total uncompensated care costs. (See table 8 for a summary of how states’ DSH payments to deemed-DSH hospitals compared to the hospitals’ share of uncompensated care costs, and table 12 in app. II for additional information by state.) In terms of ownership and teaching hospital status, hospitals that were publicly owned or teaching hospitals also generally received a greater proportion of DSH payments relative to their share of total uncompensated care costs. Among the three different ownership groups (public, non-profit, and private), public hospitals generally received a larger share of DSH payments relative to their share of uncompensated care. Among hospitals receiving DSH payments in 2014, public (36.7 percent) and nonprofit (53.7 percent) hospitals accounted for more uncompensated care costs than that of privately owned hospitals (9.6 percent). States generally provided more DSH payments to public hospitals (62.8 percent) relative to their share of total uncompensated care costs (36.7 percent). (For additional information on DSH payments and hospitals’ uncompensated care costs by ownership, see table 13 in app. II.) States distribute DSH payments to teaching hospitals at different rates, but generally provided a greater proportion of DSH payments to high-teaching hospitals (56.5 percent) relative to their share of total DSH hospital uncompensated care costs (44.0 percent). (For additional information on DSH payments and hospitals’ uncompensated care costs by hospital teaching status, see table 14 in app. II.) Nationally, urban hospitals received a greater share of DSH payments relative to rural hospitals, with 89.6 percent of DSH funds distributed to urban hospitals and the remaining 10.4 percent distributed to rural hospitals. This proportion corresponds to a similar distribution of uncompensated care costs, with 88.2 percent of uncompensated care costs among DSH hospitals carried by urban hospitals and the remaining 11.8 percent carried by rural hospitals. (For additional information on DSH payments and hospitals’ uncompensated care costs by urban/rural status, see table 15 in app. II.) For additional information on variation in uncompensated care and DSH payments by hospital category and sole community provider status, and state characteristics, see tables 16 through 19 in appendix II. We provided a draft of this report to HHS for review. HHS provided technical comments, which we incorporated as appropriate. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to appropriate congressional committees, to the Secretary of Health and Human Services, the Administrator of CMS, and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-7114, or yocomc@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix III. This bibliography contains citations for the eight Kaiser Family Foundation reports referenced in the report. Kaiser Family Foundation and Health Management Associates. States Focus on Quality and Outcomes Amid Waiver Changes: Results from a 50-State Medicaid Budget Survey for State Fiscal Years 2018 and 2019. Washington, D.C.: Kaiser Family Foundation, and National Association of Medicaid Directors, October 2018. Kaiser Family Foundation and Health Management Associates. Medicaid Moving Ahead in Uncertain Times: Results from a 50-State Medicaid Budget Survey for State Fiscal Years 2017 and 2018. Washington, D.C.: Kaiser Family Foundation, October 2017. Kaiser Family Foundation and Health Management Associates. Implementing Coverage and Payment Initiatives: Results from a 50-State Medicaid Budget Survey for State Fiscal Years 2016 and 2017. Washington, D.C.: Kaiser Family Foundation and National Association of Medicaid Directors, October 2016. Kaiser Family Foundation and Health Management Associates. Medicaid Reforms to Expand Coverage, Control Costs and Improve Care: Results from a 50-State Medicaid Budget Survey for State Fiscal Years 2015 and 2016. Washington, D.C.: Kaiser Family Foundation and National Association of Medicaid Directors, October 2015. Kaiser Family Foundation and Health Management Associates. Medicaid in an Era of Health & Delivery System Reform: Results from a 50-State Medicaid Budget Survey for State Fiscal Years 2014 and 2015. Washington, D.C.: Kaiser Family Foundation, and National Association of Medicaid Directors, October 2014. Kaiser Family Foundation and Health Management Associates. Medicaid in a Historic Time of Transformation: Results from a 50-State Medicaid Budget Survey for State Fiscal Years 2013 and 2014. Washington, D.C.: Kaiser Commission on Medicaid and the Uninsured, Kaiser Family Foundation, October 2013. Kaiser Family Foundation and Health Management Associates. Medicaid Today; Preparing for Tomorrow: A Look at State Medicaid Program Spending, Enrollment and Policy Trends Results from a 50-State Medicaid Budget Survey for State Fiscal Years 2012 and 2013. Washington, D.C.: Kaiser Commission on Medicaid and the Uninsured, Kaiser Family Foundation, October 2012. Kaiser Family Foundation and Health Management Associates. Moving Ahead Amid Fiscal Challenges: A Look at Medicaid Spending, Coverage and Policy Trends Results from a 50-State Medicaid Budget Survey for State Fiscal Years 2011 and 2012. Washington, D.C.: Kaiser Commission on Medicaid and the Uninsured, Kaiser Family Foundation, October 2011. To conduct this analysis, we used data compiled by Acumen for the Medicaid and CHIP Payment and Access Commission. These data consist of measures from several sources. The measures used within this report were collected from state disproportionate share hospital (DSH) audits and Medicare cost reports. The 2014 DSH audits, which report data on hospital uncompensated care costs and DSH payments to hospitals, were submitted by 48 states and the District of Columbia. These data do not include a census of all hospitals, but only those hospitals that were reported in the 2014 DSH audits. As a result, these data do not capture all uncompensated care costs in each state, only uncompensated care costs for those hospitals reported in the 2014 DSH audits. Two states, Massachusetts and Hawaii, did not submit a 2014 DSH audit, because they did not make DSH payments. Additionally, while South Dakota submitted a 2014 DSH audit, we excluded the state from our analysis because of concerns about the reliability of the reported cost measures. In addition, not all hospitals reported every data element we analyzed. As a result, total uncompensated care costs and total DSH payments vary between tables, as hospitals were excluded from a given table if they did not report the characteristic described by the table. The numbers of hospitals excluded because they did not report a given data element are noted in each table for which this is the case. Likewise, as uncompensated care costs are an important focus of the report, we also excluded from all analyses 13 hospitals that did not report a value for uncompensated care costs. In addition to the contact named above, Lori Achman (Assistant Director), Dawn Nelson (Analyst-in-Charge), Sean Miskell, and Jeffrey Tamburello made key contributions to this report. Also contributing were Tim Bushfield, Drew Long, Vikki Porter, and Emily Wilson.
Medicaid, the joint federal-state program that finances health care coverage for low-income and medically needy individuals, spent an estimated $177.5 billion on hospital care in fiscal year 2017. About a quarter ($46.3 billion) of those hospital payments were supplemental payments—typically lump sum payments made to providers that are not tied to a specific individual's care. States determine hospital payment amounts within federal limits. In fiscal year 2017, DSH payments totaled about $18.1 billion. Beginning in fiscal year 2020, the amount of DSH payments each state can make is scheduled to be reduced. GAO was asked to study Medicaid DSH payments to hospitals. Among other things, GAO examined hospital uncompensated care costs and DSH payments by state Medicaid program and hospital characteristics. GAO analyzed data from the 2014 DSH audits—states' independently audited and certified reports of hospital-level uncompensated care costs and DSH payments—from 47 states and the District of Columbia (48 states). Three states were excluded from the analysis because they either did not make DSH payments or the submitted data were unreliable. The 2014 data were the most recently available audited, hospital-specific, data at the time of GAO's analysis. We provided a draft of this report to HHS for review. HHS provided technical comments, which we incorporated as appropriate. Medicaid disproportionate share hospital (DSH) payments are one type of supplemental payment and are designed to help offset hospitals' uncompensated care costs for serving Medicaid beneficiaries and uninsured patients. Under the Medicaid DSH program, uncompensated care costs include two components: (1) costs related to care for the uninsured; and (2) the Medicaid shortfall—the gap between a state's Medicaid payment rates and hospitals' costs for serving Medicaid beneficiaries. GAO's analysis of hospitals receiving DSH payments showed that in 2014, costs related to care for the uninsured comprised 68 percent of total uncompensated care costs, and the remaining 32 percent was the Medicaid shortfall. Across states, GAO found that total DSH payments varied significantly in 2014. DSH payment levels are generally tied to state DSH spending in 1992 and since 1993 states have been subject to a limit on the amount of federal funding that may be used for DSH payments. Medicaid DSH payments covered 51 percent of the uncompensated care costs. In 19 states, DSH payments covered at least 50 percent of uncompensated care costs. DSH payments comprised about 14 percent of total Medicaid payments, yet wide variation existed. For example, DSH payments comprised about 97 percent of Medicaid payments to DSH hospitals in Maine and 0.7 percent of Medicaid payments to DSH hospitals in Tennessee. Some types of hospitals received a greater proportion of DSH payments relative to their share of total uncompensated care costs. For example, states generally provided more DSH payments to public hospitals (in comparison to private and non-profit hospitals) and teaching hospitals (as compared to non-teaching hospitals) relative to their share of total uncompensated care costs.