Achieving Equity in Medicare Disproportionate Share Payments to Rural Hospitals: An Assessment of the Financial Impact of Recent and Proposed Changes to the Disproportionate Share Hospital Payment Formula

Journal of Rural Health

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 healthcare safety net.

NORC Walsh Center for Rural Health Analysis
Janet Sutton, Jeffrey Stensland, Lan Zhao, Michael Cheng