Impact of Capping Medicare Disproportionate Share Hospital Payments on Rural Hospitals

Research center:
Lead researcher:
Project funded:
September 2018
Anticipated completion date:
January 2020

Medicaid and Medicare disproportionate share hospital (DSH) payments may be important sources to select rural prospective payment system (PPS) hospitals located in some of the nation's poorest counties (a disproportionate number and percent of persistent poverty counties are rural). Therefore, policies that limit DSH payments may contribute to fiscal stress that has left many of the nation's rural hospitals prospects for closure, adding to what has been a growing policy challenge since 2005. Of special note in Medicare DSH policies was a change instituted in the Medicare Prescription Drug, Improvement and Modernization Act for discharges after April 1, 2004. The total allowed Medicare DSH payment adjustment for rural PPS hospitals under 500 beds that are not Rural Referral Centers was capped at 12%. We focus in this project on the question of how the cap has affected total revenue of rural hospitals. Of special interest will be the analysis of what percent total patient revenue is derived from DSH payments when they are capped and what it would be in the absence of the cap. Fiscal health of vulnerable rural hospitals may be affected, and altering the policy may be a means of helping to sustain those hospitals.