There have been concerns about the distribution of Medicaid DSH funds as well. An early analysis by ProPAC found that "Medicaid DSH payments, in combination with state and local subsidies, played a crucial role in improving the financial status of hospitals with the highest shares of Medicaid patients and other low-income patients" (ProPAC 1994). However, the study also found that although "the increase in Medicaid payments was much more concentrated in hospitals with the largest shares of low-income patients...hospitals with typical (or low) shares of low-income patients … receive a substantial portion of both Medicare DSH payments and the increase in Medicaid payments." This led ProPAC to recommend several changes in the mechanism for distributing Medicaid DSH payments.
A subsequent study by Ku and Coughlin (1995) found that Medicaid DSH and related programs help support uncompensated care, but that only a small share of these funds were available to cover the costs of uncompensated care because of intergovernmental transfers and the amounts retained by the states . In a later re-examination of this issue after the BBA legislation aimed at addressing this issue had taken effect, Coughlin, Ku, and Kim (2000) found that an increasing share of the DSH gains was paid to local public and private hospitals and less was retained by the states. However, the use of DSH by the states remained highly uneven.