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Achieving Equity in Disproportionate Share Payments to Rural Hospitals: An Examination of MedPAC's Revised Disproportionate Share Formula
The DSH adjustment has been criticized for its bias against small and rural hospitals. Analyses have shown that 95 percent of DSH payments go to urban hospitals and that only 20 percent of rural hospitals, compared to 50 percent of urban hospitals, qualify to receive DSH payments. The Medicare, Medicaid and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA) established a uniform DSH qualifying threshold and increased the add-on amount for small and rural hospitals. This study uses data from the 1998 Medicare Cost Report and Impact Files to examine the effect of these DSH revisions on rural hospitals. Estimates of the rural providers that would have qualified to receive DSH and the associated payments that these hospitals would have received if BIPA regulations had been in effect were calculated to determine the financial impact of this legislation. Additionally, the effect of DSH revisions on hospitals' financial performance, as measured by operating and total margins, was examined.
Publications
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Achieving Equity in Medicare DSH Payments to Rural Hospitals: An Assessment of the Financial Impact of Recent and Proposed Changes to the DSH Payment Formula
Author(s): Janet Sutton, Jeffrey Stensland, Lan Zhao, Michael Cheng
Date: 05 / 2002
Examines how Benefits Improvement and Protection Act revisions to the qualifying and distribution formulas of the Medicare disproportionate share hospital (DSH) program are likely to affect rural hospital financial performance as measured by hospital operating and total margins. Also considers the effect of establishing a uniform DSH formula. The study shows that paying rural hospitals based on the rules used for urban hospitals would produce financial benefits that could improve access to care in rural communities. Notably, nearly one-fifth of financially distressed rural hospitals could have remained "in the black" and an even greater proportion could have received additional funds to cover costs incurred by treating indigent members of the community if rural hospitals had been paid in 1998 under the same DSH formula. Among the chief economic winners would be the smallest rural hospitals, which generally are in worse financial condition than other hospitals. Findings suggest that elimination of rural and urban disparities in DSH payment could strengthen the rural health care safety net. Report available on request.
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Are Fundamental Changes to Medicare's Disproportionate Share Methodology Needed?
Date: 06 / 2002
Examines whether the Medicare disproportionate share percentage (DPP) is a useful predictor of Medicare costs per adjusted discharge and whether it is a good predictor of uncompensated care burdens. Findings indicate that the DPP is not a useful predictor of differences in the cost of treating Medicare patients (and is a statistically significant but weak predictor of uncompensated care burdens); the analysis does not support the contention that treatment of substantial numbers of low-income patients with public insurance directly causes hospitals to incur higher costs per discharge. It finds no support for basing DSH payments on DPP levels. The study concludes that if its results were confirmed in a national study of DSH payments, operating costs, and uncompensated care costs, there would be justification for fundamentally changing DSH payment methodology. Furthermore, since the results indicate that patient needs per adjusted discharge unit are unrelated to the DPP at both rural and urban hospitals, the authors see no rationale for differential treatment between rural and urban providers.
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