Analysis of the Joint Distribution of Disproportionate Share Hospital Payments. Alternative Criteria that Could Be Used to Identify Safety Net Hospitals

09/01/2002

We explored several types of criteria that could be used to identify safety net hospitals, including inpatient claims-based measures and measures derived from hospital financial data. Our analysis of both the HCUP and three-state data suggest that the definition of the patient population (e.g., with or without Medicare SSI beneficiaries) that is to be considered in the DSH allocation statistic is more important than how the care provided to those patients is quantified. Generally, the measures that included Medicare SSI beneficiaries along with all other low-income patients generally performed better than those that did not in targeting financially vulnerable hospitals. If an "all low-income" patient measure is not administratively feasible, using Medicaid patients only is preferable to Medicare SSI and Medicaid days or the Medicare DSH patient percentage, both of which are less correlated with low-income patients.

The different measures quantifying the amount of inpatient care provided to a low-income population (days, discharges, or charges) are highly correlated. However, the choice could have implications for certain hospitals. Those which have a high volume of Medicaid maternity cases or shorter than average length of stay (e.g. California hospitals) would benefit if discharges were used instead of days as the measure of the proportion of care provided to low-income patients. The Medicare case mix index is not a good proxy for the hospital's low-income patient case mix. In the absence of data on the case mix of low-income patients, days or charges should be used instead of discharges as the allocation statistic.

From the financial data for the three states we were able to compare how a revenue statistic that includes both inpatient and outpatient care compares to one that includes inpatient care only. The correlation between low-income days and low-income revenues indicates the choice of measure could have significant implications for some hospitals. The measure of the proportion of a hospital's gross revenues that is attributable to low-income patients was slightly more highly correlated with the hospital's ratio of financial risk to operating expenses than the other utilization measures. It is not clear from the correlation results that including all care significantly improves the targeting of DSH funds to financially vulnerable safety net hospitals. Also, the inclusion of outpatient care raises issues regarding subsidies to other ambulatory care providers. The role that non-hospital ambulatory care providers play in the safety net for low-income populations is discussed in Appendix E. A policy that concentrates federal support for uncompensated care solely on hospitals may serve to discourage community providers from furnishing substantial amounts of care to indigent populations. It may also have implications for the relative generosity of Medicaid payments for services provided in hospital outpatient departments and clinics and in physician offices. This is an area that warrants further investigation.

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