Analysis of the Joint Distribution of Disproportionate Share Hospital Payments:

4. Current Distribution of DSH Payments

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Contents

• Medicare Payments
• Medicaid DSH Payments
• Joint Distribution of Medicare and Medicaid DSH Payments

Endnotes

In this chapter, we discuss our analysis of hospital-level distributions of Medicare and Medicaid disproportionate share payments for FY1998 and summarize the results at the state-level and at the national level using key hospital characteristics. We begin with a discussion of our simulation of actual FY1998 Medicare DSH payments and what the payments would have been assuming current law policies for FY2003 had been in effect. Next, we discuss the results of matching the Medicaid DSH payments reported by the states with individual hospitals. Finally, we provide information on combined Medicare and Medicaid DSH payments by hospital characteristic and by state.

Medicare Payments

Medicare DSH payments are made only to acute care hospitals paid under the prospective payment system for inpatient hospital services. The payments are an add-on to the standard DRG federal payment rate. Sole community and Medicare-dependent hospitals that are paid a hospital-specific rate do not receive DSH payments. The DSH payment formula for operating costs differs across classes of hospital while only urban hospitals with 100 or more beds are eligible for DSH payments on the federal payment for capital-related costs (Table 1.1). As explained in Chapter 1, operating DSH payments were affected by the Balanced Budget Act of 1997, the Balanced Budget Refinement Act (BBRA), and the Beneficiary Improvement and Protection Act (BIPA).

Data

We drew on several data sources to estimate Medicare DSH payments: the Provider of Service (POS) file, the PPS Impact files for FY 1998 and FY2000, the Provider-specific File (PSF), and HCRIS files. Our starting point for a hospital listing was the CMS Provider of Service (POS) file. According to this file, there were 8,868 providers classified as "hospital" in the United States in FY1998. Of this total, we identified as our initial sample approximately 6,200 acute care hospitals that could be theoretically eligible to receive Medicare DSH payments. We used the information in the PPS Impact files and the PSF files to simulate DSH payments (see Appendix A for a more detailed explanation of the data sources). The PPS Impact files and the PSF file provided sufficient information to simulate Medicare DSH payments for 5,148 hospitals, or approximately 82% of hospitals in the initial sample. It appears that at least two-thirds of the hospitals with missing data could be hospitals that no longer exist or have merged with other hospitals. Although they are present in the 1998 POS file, they are not listed on other sources for 1998 or later, including the AHA survey.

Methodology

Medicare DSH payments are a percentage add-on to the federal PPS payment rates for operating and capital costs. For an individual discharge, the standard payment is adjusted for the relative weight for the DRG to which the case is classified. The case mix index (CMI) represents the average case weight for all discharges at the hospital over the fiscal year.

The general formula that we used to estimate a hospital's total DSH payments was:

DSHpay_i = ((wage-adjusted operating standardized amount_i * DSH operating factor_i) + (geographic-adjusted federal capital rate * DSH capital factor)) * CMI_i * Discharges_i

We also took into account special payment provisions that affect the DSH payments for certain types of hospitals.

• For operating payments, sole community hospitals (SCH) receive the higher of 1) the federal payment amount (after adjustment for DSH and indirect medical education (IME) payments and outliers) and 2) a hospital-specific rate.⁽¹⁾ We estimated the amount of DSH payable to SCH hospitals paid the federal rate. For informational purposes, we also estimated the amount of DSH payments that would have been paid to SCH hospitals that are paid the hospital-specific rate. We distinguished between the two classes of hospitals when aggregating DSH data.
• Hospitals may request annual reclassification by the Geographic Reclassification Review Board (MGCRB) for purposes of the standardized amount and/or wage index. We took the effect of the reclassifications into account. The reclassifications can affect the standardized amount or geographic adjustment factor applicable to the hospital.

Results

Table 4.1 summarizes the distribution of Medicare payments across classes of hospitals using both the FY1998 payment rules and the rules that will be in effect in FY2003. The latter rules reflect the BIPA changes in the payment formula and the expiration of the BBA across-the-board payment reductions. We estimate FY 1998 actual DSH payments at $4.83 billion. If the FY2003 DSH payment rules had been in effect and all other FY1998 payment parameters remained unchanged, payments would have been $358 million higher, or $5.18 billion. Consistent with the changes in the formula, most payment increases occur among rural hospitals and small urban hospitals. Columns B and C show the distribution of hospitals and Medicare inpatient days within each hospital class regardless of whether they received DSH payments.

Following is a summary of key findings.

Urban/Rural Status. Hospitals located in large urban areas (defined as having a population of 1 million or more) received the largest share of FY1998 Medicare DSH payments. Although they provided only 49% of total Medicare inpatient days, they received 65% of total Medicare DSH payments. The BIPA rules reduce this share only slightly to 62%. Although rural hospitals provided 19% of total Medicare inpatient days, they received only 3.1% of the Medicare DSH payments. Under BIPA, the rural share of DSH payments will more than double to 7.2%.

Region. The Pacific and East North Central regions have the largest disparities between the share of Medicare DSH payments they received and their share of Medicare inpatient days (20% vs. 11%, and 10.5% vs. 17%, respectively). The differences are largely attributable to the factors other than DSH patient percentage that affect payment distribution. Payments are made on a per discharge basis and are a function not only of the hospital's DSH patient percentage but also its case mix and wage index. The hospitals in the Pacific region are characterized by a shorter length of stay, high case mix, and high hospital wages. Hospitals in the East North Central have a longer length of stay, lower wages, and a lower case mix index. The distribution across regions was not affected by the BIPA changes.

Bed Size. Larger urban hospitals receive a disproportionately greater share of Medicare DSH payments. Hospitals with 500 beds or more provided 32% of Medicare inpatient days and received 43% of Medicare DSH funds in FY1998. Actual FY1998 payments to rural hospitals had the same bias towards larger hospitals as urban hospital payments. Rural hospitals with 200 beds or more provided 27% of Medicare inpatient days but received 47% of Medicare DSH payments to rural hospitals. At the same time, hospitals with less than 100 beds provided 42% of Medicare inpatient days but received only 17% of Medicare DSH payments. Among rural hospitals, the BIPA rules will reduce the share of DSH payments to those with more than 200 beds to 35%, and raise the share of DSH payments to those with fewer than 100 beds to 32%. The BIPA rules will not affect the relative distribution of Medicare DSH funds among urban hospitals.

Hospital Type. To be consistent with tables on Medicaid DSH payments that follow, we used the type of hospital assigned by the state in reporting Medicaid payments as the first determinant of provider type. We found several situations in the Medicaid data where a Medicare acute care hospital was classified as a psychiatric facility by the state even though the hospital had a Medicare acute care provider number. It appears that in these cases the Medicaid DSH payments are based on the psychiatric care provided by the institution rather than its acute care services. Ideally, the Medicaid DSH payments would be assigned to the distinct part psychiatric units in these situations and would not be considered acute care hospital payments. However, a provider-by-provider basis determination would be needed that this is the correct interpretation and that the discrepancy does not result from errors in state reporting of provider type or our assignment of provider numbers. In the interim, this accounts for the seemingly anomalous situation where psychiatric facilities receive Medicare DSH funds.⁽²⁾

Ownership. DSH payments are more evenly distributed across hospitals by type of ownership than might be expected based on the traditional role of governmental providers in providing care to low-income patients. Not-for-profit hospitals received the bulk of Medicare DSH payments - 66% of the total - but somewhat less than their share of total Medicare inpatient days (73%). Consistent with their role in providing a significant amount of care to low-income patients, a somewhat larger share of DSH payments went to state and local hospitals. Governmental hospitals provided 16% of Medicare inpatient days and received 21% of Medicare DSH funds. The BIPA changes do not influence this pattern significantly. Interestingly, proprietary hospitals are not generally viewed as safety net hospitals; however, their share of DSH payments (12%) approximates their share of inpatient days (11%).

Case Mix. The relative share of Medicare DSH payments increases as the Medicare case mix index increases. The hospitals in the highest quartile of Medicare case mix index provided 54% of the Medicare inpatient days and received 67% of the payments. This result is consistent with larger tertiary care facilities providing a higher proportion of care to low-income patients.

As expected, Medicare DSH payments are skewed towards hospitals that serve a high percentage of Medicare beneficiaries on SSI and Medicaid patients.⁽³⁾ Hospitals for which Medicare beneficiaries on SSI and Medicaid patients constitute at least 20 percent of the patient census provide about 37% of Medicare inpatient days but receive more than 80 % of the DSH payments.

• Even though the DSH payment is an add-on to Medicare DRG payments, payments decrease as the percentage of Medicare utilization increases. For example, hospitals with 25-49 percent Medicare utilization account for 33% of the days but receive 53% of the DSH payments under FY2003 rules. Hospitals with 50-64 percent Medicare utilization account for 45.3 % of the days but receive only 30% of DSH payments. This is probably a result of the Medicaid utilization in the DSH formula being expressed as a percentage of total inpatient days. By definition, hospitals that have high Medicare utilization will have a low Medicaid percentage in their DSH patient percentage.
• Less than 10% of Medicare patients in most hospitals are entitled to SSI. Once this threshold is passed, hospitals begin to receive a higher percentage of DSH payments relative to their inpatient utilization. For example, hospitals with 10-20 percent of their Medicare population eligible for SSI account for 26 % of Medicare inpatient days but receive 46 % of Medicare DSH payments.
• Medicaid utilization can be expressed either as a percentage of non-Medicare days (the better measure of the proportion of the patient population that is low-income) or as a percentage of total inpatient days (which is used in the Medicare DSH formula). When looked at as a percentage of non-Medicare patients, hospitals on average do not benefit from Medicare DSH until their Medicaid utilization rate exceeds 30 percent. When looked at as a percentage on total inpatient days, hospitals in the upper quartile of Medicaid utilization rates for their state benefit the most. They account for 28% of Medicare inpatient days and 62.5% of the Medicare DSH payments. Hospitals with a Medicaid utilization rate that is at least one standard deviation above the state mean furnish 21% of Medicare inpatient days and receive 38% of DSH payments.

Teaching Status. The distribution of payments across classes of teaching hospitals reflects the commitment of most major teaching hospitals to serving low-income patients. The 237 teaching hospitals in the analysis file with 100 or more residents account for 36 % of Medicare inpatient days and receive 55% of Medicare DSH payments.

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Medicaid DSH Payments

The Medicaid DSH program was intended to function as a joint effort of the states and the federal government in assisting DSH hospitals. As discussed in Chapter 1, states are required to designate certain hospitals as DSH but have considerable flexibility to tailor the program to state needs and priorities. Each state generates its own funds, which are then matched by the federal share of the total state DSH money according to a fixed percentage (FMAP). Each state has its own allotments (or caps) on the total amount of DSH money it can pay to hospitals, on the maximum federal share in this total amount (federal matching funds), and on some aspects of the distribution of state Medicaid DSH funds.⁽⁴⁾ A state's actual DSH payments cannot exceed the allotments established by statute. It is commonly recognized that the states often use the Medicaid DSH program not only to finance hospitals serving a disproportionately large share of low-income patients (the program's direct purpose), but also to secure additional federal funds for the state budget. To evaluate the effect of the program on the financial positions of hospitals, we need to understand the underlying composition of total Medicaid DSH funds. States often finance their share of Medicaid DSH funds by obtaining money from the hospitals themselves. In a simplified example, a hospital may provide $100,000 to a state to finance its DSH program. If the state's federal matching percentage is 50%, the state will then receive an additional $100,000 from the federal government in matching funds. Although the total state DSH payment back to the hospital will be $200,000, only half of this amount - the federal share - would represent new money for the hospital.

There is also a possibility that the state will pay the hospital only some share of the federal funds (for example, $60,000, or a total of $160,000). The rest of the federal funds the state may use as DSH payments to other hospitals or it may retain them for other purposes. We call any retained funds (which are gains to the state) residual funds, following the terminology used in Coughlin and Ku (2000). ⁽⁵⁾ In addition, for the state facilities receiving some new DSH, the state may reduce other financial assistance (not related to the DSH program). As a result, there is a possibility that only the federal share of the DSH funds to non-state facilities may in fact represent new funds to facilities from the DSH program.

Data

The hospital-specific Medicaid disproportionate share hospital (DSH) payments for this analysis primarily came from state reports submitted to CMS. As of May 2001, CMS had received at least one report for either FY 1998 or FY 1999 from 46 states and the District of Columbia. Two of the four states that were not included, Hawaii and Tennessee, do not have Medicaid DSH programs and therefore do not submit reports. The other two states, Georgia and Ohio, provided hospital-specific data directly to us upon request.

Methodology

General Approach. To assess the validity of the hospital specific data, we compared total spending included in the CMS reports to DSH expenditure data reported by the states in the annual Financial Management Reports (HCFA-64). We also checked total expenditures from the hospital specific reports against the states' DSH payment limits established in the Balanced Budget Act (BBA) of 1997. To merge the Medicaid DSH payment data with our estimated Medicare DSH payments, we identified hospitals in the Medicaid reports using their Medicare provider numbers. Only two states, Michigan and North Carolina, put Medicare provider numbers on their hospital specific Medicaid DSH reports. We used the CMS On-line Survey and Certification Reporting System (OSCAR) and Provider of Service (POS) files, as well as AHA on-line Hospital Directory (www.ahd.com) to match hospital names in the Medicaid reports with Medicare provider numbers.

Several states included a few individual hospitals in their Medicaid DSH reports that we could not identify with sufficient confidence to match them with their Medicare provider numbers. We created dummy Medicare provider numbers for these hospitals to keep them in the data set, but they could not be linked up with Medicare DSH payment information. In addition, eight states lacked hospital specific payment information for a much larger share of their Medicaid DSH payments.⁽⁶⁾ For these states, we created one dummy variable to account for the missing DSH payments to acute care facilities and a separate dummy variable to account for missing IMD DSH payments. Appendix A provides an explanation of state-specific reporting issues and how we handled them.

Estimating New DSH Funds. Unfortunately, no data are available on the precise amounts of net gains to hospitals from the Medicaid DSH program (new funds) in FY1998. We used estimates developed by Coughlin, Ku and Kim (2000) for FY1997 to construct possible measures of this parameter on the upper and lower bounds. We looked at four scenarios:

1. All funds from the DSH program are new funds to the hospitals. While this is unlikely to be a correct assumption, it gives the upper possible bound on the amount of new funds. We assumed this measure equals our estimate of total DSH payments by the state.
2. Only the federal share of DSH payments represents new money to facilities. To calculate this measure, we apply federal matching percentage to the DSH payments made by the state to each hospital.
3. Only the portion of the federal share that was actually paid to hospitals represents new money that they receive. This scenario takes into account the possibility that states may retain some residual funds for their own use. We applied estimates of the percentages collected by states in residual funds in FY1997 uniformly to federal shares of all hospitals in the state. We recognize that the actual redistributions at the level of individual hospitals may be more complex and some may have received higher percentages of their federal shares than others. However, we have no basis for making other than an across-the-board estimate. For those states that were not covered by the survey conducted by Coughlin, Ku and Kim (2000), we assumed zero residual funds. The assumption seems to be reasonable, because even within the sample covered by the survey only 12 states out of 40 have state residual funds.
4. Only the portion of the federal share that was actually paid to non-state hospitals represents new money to health care facilities in the state. This measure is an estimate of the lower possible limit on the new funds to hospitals. It takes into account the fact that DSH money may not add new funds to state hospitals because of possible offsetting diversion of other state financial assistance.

Actual Medicaid DSH Payments vs. Receivables, by State. In some cases, states make Medicaid DSH payments to facilities located in a different state. We assessed the magnitude of such payments and found that interstate DSH transfers are very small (Appendix B Table B.1). Overall, they constitute only 0.3% of the total FY1998 DSH payments. Because the funds reported as paid to hospitals located in another state are generally small, we assumed in our analyses that the DSH amounts paid by the states and amounts received by the facilities in the same state are equivalent.

Results

Matching to Medicare Provider Numbers. We were unable to identify the individual hospitals receiving 12.7% of the Medicaid DSH payments. These Medicaid funds with unidentified distribution consist of the two parts:

• payments to specific hospitals for which we know some characteristics, but do not know the provider number (1.8% of the Medicaid total), and
• aggregate payments by states, for which we were not able to identify the distribution among specific hospitals (10.9% of the Medicaid total).

Throughout this report, we refer to specific hospitals with known provider numbers, and to corresponding payments, as "identified" facilities (payments). The rest of the Medicaid DSH payments (12.7%) are referred to as "unidentified". When we combine identified facilities with individual hospitals with unknown provider numbers, we call them together "specific" facilities (payments). Finally, we call state amounts for which we could not identify individual recipients "payments with unknown distribution".

New Funds for Hospitals from the Medicaid DSH Program. Nationally, we found that the States reported $15 billion in DSH payments to hospitals. Utilizing the estimates made by Coughlin et al. for FY 1997, we estimate that the funds retained by the 11 states represented 15% of federal DSH payments. Table 4.2 compares the net gains by facilities from the Medicaid DSH program across the four different assumptions regarding the extent to which the DSH payments represent "new money" to the hospitals.

• Column E shows the amounts hospitals would have received under an assumption that all DSH funds are new funds to the hospitals. The states with the largest DSH programs are California, New York, New Jersey, and Texas.
• Column F shows the amounts hospitals would have received under an assumption that only the federal share of DSH payments represents new money to facilities. It was determined by applying the federal matching rate (Column C) to the DSH payments to individual hospitals as reported by the state.⁽⁷⁾ Overall, the federal matching rate was 56.6 percent but ranged from a high of 77.1 percent in Mississippi to the 50 percent floor in eight states. A relatively higher percentage of DSH payments are assumed to be new funds in the states with relatively high federal matching rates. We use these results in our analyses examining the joint distribution of Medicare and Medicaid DSH funds
• Column G takes into account that some states may retain residual funds for their own use and assumes that only the portion of the federal share that was actually paid to hospitals represents new money. It reduces the estimate of new DSH funds in 11 states: California, Connecticut, Georgia, Indiana, Kentucky, Massachusetts, Mississippi, Missouri, North Carolina, Rhode Island, and Texas.
• Column H assumes that the federal share of DSH payments to non-state hospitals, less a pro-rata portion of the residual funds retained by the states, is new DSH funds. It affects the estimate of new DSH funds in states that pay a high proportion of their DSH funds to state institutions. Relative to Column G, this assumption reduces the estimate of new DSH funds by more than 50 percent in 13 states, including three with more than $100 million in total DSH payments: Louisiana, Indiana, and Virginia.

Medicaid DSH Distribution to Acute Care Facilities and IMDs by State. Table 4.3 shows the split of Medicaid DSH payments between acute care facilities and IMDs. The use of Medicaid DSH funds to support mental health care facilities is viewed as troubling by federal policymakers since Medicaid does not cover services in IMDs for the under age 65 population. IMDs received 23% of the total FY 1998 Medicaid DSH funds (Column E) compared to 1997, when it was equal to 21% (Coughlin, Ku and Kim, 2000). The number of states where payments to IMDs exceed 50% of the total Medicaid DSH funds also increased. In 1997, there were six such states (Florida, Illinois, Kansas, Maryland, Oregon, and South Dakota). In 1998, there were ten such states (Alaska, Delaware, Indiana, Kansas, Maryland, Michigan, North Dakota, Oregon, Pennsylvania, and South Dakota)⁽⁸⁾.

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Joint Distribution of Medicare and Medicaid DSH Payments

Summary of Distribution of Total DSH Payments

Table 4.4 summarizes the overall results of combining the Medicare hospital-specific estimates with the hospital-specific distribution of FY1998 Medicaid funds reported by the States. The combined file has 5,638 hospitals with identified DSH payments (Column B). We estimate total DSH payments for FY1998 in the amount of $19.855 billion, with the Medicare share of $4.825 billion and Medicaid share of $15.03 billion.

Of total DSH payments, 9.6 % are attributable to unidentified Medicaid DSH payments. Because we do not know most characteristics of the hospitals receiving unidentified payments, we exclude them from the analysis in summaries of payments by classes of hospitals. However, one characteristic that we do know about these payments is their regional distribution (Table 4.5) Compared to the regional distribution of total Medicaid DSH payments, the unidentified funds are more concentrated in the Middle Atlantic (41.9% vs. 22.6%), South Atlantic (22.7% vs. 12.9%) and East South Central (18.4% vs. 3.5%) regions and rarely occur in the Pacific (0.1% vs. 18.4%) and West South Central regions. This distribution of unidentified Medicaid DSH payments has implications for our analysis of DSH payments by hospital classes. To the extent there are there are systematic differences in the types of hospitals across regions, the distribution of total DSH payments by hospital classes in Tables 4.6 and 4.7 will be affected.

Distribution of Specific DSH Payments by Classes of Hospitals

Table 4.6 describes the distribution of Medicare, Medicaid, and total FY1998 DSH payments. In column C, we report Total Adjusted Patient Days from the AHA survey. It is defined as: Total Inpatient Days + (Total Inpatient Days * (Gross Outpatient Revenue/Gross Inpatient Revenue)). By converting outpatient days into equivalent inpatient days, we obtain a measure of the total capacity of the hospital. The measure is for all patients: Medicare, Medicaid, and other. With the shift of services to outpatient departments, we believe that it is preferable to a measure of inpatient services only.

Major observations from the summary of the distribution of total actual FY1998 DSH funds include the following:

• Urban/Rural Status. Both Medicare and Medicaid DSH payments are concentrated predominantly in urban areas. Although rural areas have 22% of total adjusted patient days, they received only 6% of total DSH funds (3% of the Medicare DSH payments and 7% of the Medicaid DSH payments). Among urban areas, a higher share of total DSH payments go to hospitals located in large urban areas (54% of total DSH funds vs. 45% of total adjusted patient days). The differences are greater for Medicare payments than Medicaid. Large urban areas receive 65% of Medicare DSH payments and 51% of Medicaid DSH payments.
• Bed Size. Among urban hospitals, hospitals with 500 or more beds receive 46% of DSH payments, while they provide only 32% of adjusted patient days. Small rural hospitals (less than 100 beds) receive 33% of total rural DSH. Medicare DSH payments tend to be more highly concentrated in large hospitals than Medicaid DSH payments.
• Hospital Type. Acute care (general) hospitals receive the biggest share of total DSH payments (81%), because DSH program is mainly targeted to these hospitals. However, DSH share of psychiatric hospitals (16%) is disproportionately larger than their share of patient days (4%). Payments to psychiatric hospitals and other institutions for mental disease comprise 22% of Medicaid DSH funds.
• Ownership. Not-for-profit providers receive the largest share of total DSH payments (38%), but this share is considerably less than their share of the total patient days (67%). In contrast, state and local hospitals together receive 48% of the DSH funds, while providing only16% of the total adjusted patient days. The differences are caused by the Medicaid payments. Medicare payments by type of ownership approximate total adjusted patient days.

• Case-mix index. We are missing the Medicare case mix index for 490 facilities that received Medicaid DSH funding (unidentified specific hospitals and IMDs). As is the case with Medicare payments, the remaining payments to identified hospitals are skewed towards hospitals with a higher case mix index.
• Low-income Patients. We are missing information needed to categorize about 600 facilities receiving Medicaid DSH payments. When we examine only the distribution of the remaining funds to identifiable hospitals, we find the following:
  • A significant portion of the remaining Medicaid DSH funds (3.4%) are paid to hospitals in which less than 10 percent of the inpatient days are attributable to Medicare beneficiaries entitled to SSI or non-Medicare patients entitled to Medicaid. Most of these are psychiatric facilities.
  • Compared to Medicare DSH funds, a greater proportion of Medicaid DSH funds are directed towards the hospitals in which 40 percent or more of inpatient days are attributable to Medicare beneficiaries entitled to SSI or non-Medicare patients entitled to Medicaid. There are 392 hospitals in this category that receive about 36 % of identifiable DSH funds from Medicare and Medicaid.
  • Facilities with the very highest proportion of non-Medicare patients who are entitled to Medicaid (.70 and above) receive a higher proportion of Medicare funds than Medicaid funds. The facilities with a non-Medicare/Medicaid ratio of .40-.70 receive a higher proportion of Medicaid DSH funds relative to Medicare DSH.
  • More than one-third of the total DSH funds to identifiable hospitals flow to facilities with less than 25 percent Medicare utilization. This is because about half of Medicaid funding is concentrated in these facilities.
  • Not surprisingly, Medicaid DSH funds are more concentrated than Medicare funds in those hospitals that have the highest Medicaid utilization as a proportion of total patient days. Hospitals that are in the upper quartile of Medicaid utilization for their state receive about 75 % of Medicaid DSH funds compared to 63% of Medicare DSH funds. When the two funding sources are combined, about 72 % of identifiable DSH funds flow to hospitals in the upper quartile of Medicaid utilization for the state in which they are located. About 55 % of total DSH funds flow to hospitals with Medicaid utilization that is at least one standard deviation above the mean Medicaid utilization rate for the state.
• Teaching Status. We are missing information on 530 identifiable facilities that receive Medicaid DSH funding. When we examine the distribution of the remaining funds to identifiable hospitals, we find that Medicaid DSH funding is considerably more concentrated than Medicare DSH payments in major teaching facilities. When considered together, hospitals with 100 or more residents account for about 16 % of adjusted inpatient days but receive nearly half of total DSH funds.

Distribution of Total DSH Payments by State

Table 4.7 shows the joint distribution of Medicare and Medicaid payments. The five states receiving together almost half of the total amount of DSH funds (48.7%) are California (16.7%), New York (12.7%), Texas (9.3%), New Jersey (5.7%), and Louisiana (4.3%). At the same time, these states have only 28% of the total adjusted patient days (7.9, 9.7, 5.8, 2.7, and 1.9 %, respectively).

Baseline for Analyses of Alternative Allocation Policies

In our simulations of alternative DSH policies in Chapter 7, we use a combined estimate of Medicare and Medicaid DSH payments:

• The Medicare estimate is based on the amount of Medicare DSH payments that hospitals would have received in FY1998 if the BBRA and BIPA changes in the eligibility and payment formula had been in effect. The temporary across-the board reductions are not reflected in the baseline.
• The Medicaid estimate is based on the federal share of Medicaid DSH payments.

The results of combining the current law Medicare payments with the federal share of Medicaid payments for all the hospitals in our database are in Appendix B. (The actual baseline for a given simulation is determined by the hospitals that are included in that simulation). Limiting the Medicaid DSH payments to the federal share increases the Medicare share of total DSH funds to identifiable hospitals from 26 % in the preceding tables to 38 % (Table B.2). As a result, Medicare payment distributions have greater influence on the distribution of the combined new DSH funds. In addition, the Medicaid distribution is affected by the FMAP percentages. The proportion of DSH funds received by hospitals in states with a high FMAP increases relative to those with a low FMAP (Table B.3).

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Endnotes

1.  Medicare dependent hospitals receive 1) the federal payment amount plus 2) 50 percent of the difference between payments based on the hospital-specific rate and payments based on the federal rate, if the hospital-specific rate is higher. Thus, the MDH provision does not affect the level of DSH payments.

2.  By design, the Medicare DSH program applies only to acute care hospitals that are paid under the prospective payment system. Hospitals that are excluded from the prospective payment system are reimbursed on a reasonable cost basis subject to rate of increase (TEFRA) limits and do not receive DSH payments. Excluded units of acute care hospitals are assigned separate provider numbers (and, under the Medicare convention for assigning Medicare provider numbers, an acute care unit of a psychiatric facility would receive the main provider number). We found a several situations in the Medicaid data where a Medicare acute care hospital was classified as a psychiatric facility by the state.

3.  We use as our measure the percentage of total inpatients that are either Medicare beneficiaries on SSI or non-Medicare patients who are entitled to Medicaid. This differs from the DSH patient percentage, which is the percentage of Medicare patients who are entitled SSI plus the percentage of total patients who are non-Medicare patients entitled to Medicaid.

4.  One such distributional issue is the cap on DSH money that states can pay to their Institutions for Mental Disease (see discussion on Table 4.3).

5.  The retained funds are not eligible for FMAP.

6.  Alabama, Colorado, Georgia, Illinois, Indiana, Minnesota, New Jersey, and Pennsylvania.

7.  In some cases, we found that the sum of these federal shares in all payments made by the state exceeds state federal allotment. We considered scaling down all individual payments proportionately so that the sum is equal to the federal allotment. The assumption behind this would be that the federal matching funds never exceed the maximum limit on such payments established for all states by the federal government. However, we found that the reported amounts were consistent with the HCFA-64. We decided to rely on the HCFA-64 and make no adjustments to the reported amounts.

8.  Michigan and Pennsylvania did not take part in the survey conducted by Coughlin, Ku and Kim (2000), so we do not have data on their share of IMD payments in 1997.

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