Analysis of the Joint Distribution of Disproportionate Share Hospital Payments. Comparison of Current and Alternative DSH Policies


Table 7.4 summarizes the results of our analysis of the current distribution of DSH payments to the hospitals in the HCUP file. Most of the hospital categories in the first column are self-explanatory. The grouping of hospitals by the percentage of low-income patient days is based on the proportion of low-income patient days attributable to Medicare SSI, Medicaid, local indigent care programs, self-pay and no-charge patients. The safety net hospitals category includes all hospitals with at least 20 percent of their inpatient days attributable to low-income patients. The 20% threshold derives from the 15% threshold used in the Medicare program based solely on Medicare SSI and Medicaid inpatient ratio plus 5% for uninsured patients. These hospitals are grouped by their total margin net of DSH payments.

We eliminated 8 hospitals from our simulations because we did not have margin data for them. In total, 492 of the remaining 632 hospitals received DSH payments from Medicare and/or Medicaid. The total margin net of DSH (Medicare plus the federal share of Medicaid) was 2.0% and the total margin with DSH was 5.7%. The total margin with DSH is about 1% higher than the margin we found for all hospitals in our analysis file in our Chapter 5 analysis (4.7%). In particular, the county-owned hospitals in the full analysis file had a total margin with DSH of 5.0% compared to 12.9% in the HCUP analysis file. This may be indicative of the uniqueness of each state's DSH program and the danger of using selected states to draw national conclusions about DSH payments. Safety net hospitals accounted for 45% of adjusted inpatient days and received 88% of the DSH funds. Safety net hospitals with total margins net of DSH of 5% or higher received 20% of DSH funds. DSH payments were made to 73 hospitals with less than 10% low-income patient days (which resulted from the Medicare DSH formula).

Table 7.4 FY 1998 Medicare Current Law and Federal Share DSH Payments Hospitals in HCUO Analysis File

We examined alternative DSH allocation policies using different combinations of the measures discussed in Chapter 6. For illustrative purposes, we present the results from a basic simulation that allocated DSH based on the hospital's percentage of low-income days other than Medicare SSI days (Table 7.5). The allocation factor was based on the formula:

(Medicaid+ local indigent care+ self + no-charge patients) -.15 x WI x adjusted inpatient days

total inpatient days

Table 7.5 Distribution of Joint DSH Funds Based on Inpatiend Days Attributable to Medicaid, Local Indiqent Care, Self and No-charge Patients

Because Medicare SSI patients were not included in the allocation policy, the patient percentages used to allocate funds are not the same as those used to establish each of the low-income patient categories in the first column. This explains why 23 safety net hospitals did not receive any DSH funds under the simulation. Overall, the number of hospitals that would receive DSH funds decreases from 492 to 276.

  • The percentage of DSH funds distributed to county-owned hospitals would decrease from 33% to 27 %. The average payment per adjusted day (for all county-owned hospitals) would decline from $246 to $207 but these hospitals would continue to have higher than average total margins with DSH (10.5%). Non-profit hospitals would be the primary winners ($123.5 million).
  • Among teaching hospitals, those with 10-100 residents would lose $103.5 million in DSH funds. The gains are spread across the other teaching categories.
  • The hospitals with at least 60 percent low-income patient days (including Medicare SSI patients) would increase their share of DSH funds from 16 to 29%.
  • Hospitals defined as safety net hospitals (at least 20 percent low-income patient days) would receive 99% of the DSH funds. Most of the redistribution would benefit those hospitals with total margins net of DSH in the -5.0% to +5.0% range. However, hospitals with margins in excess of 5.0% would increase their share of DSH funds from 19 to 24%.

We examined the relationship between the alternative DSH allocation factors and net income (Table 7.6). The purpose was two-fold: to determine if there are significant differences in the DSH funds that would be allocated to safety net hospitals under the alternative polices and to determine the extent to which the policies direct funds towards safety net hospitals that are financially vulnerable. Our measure of financial vulnerability was net income per day. We used the allocation factors without a threshold for DSH payments so that we could examine the relationship between each allocation factor (e.g. % low-income patients exclusive of Medicare SSI patients x wage index) and net income per day. Ideally, we would have found a strong negative correlation between total income net of DSH and the allocation factor.

Table 7.6
Correlation Between Selected DSH Allocation Policies and Net Income HCUP Analysis File: Safety Net Hospitals Only
  $ per Day
Income Net of DSH Joint DSH Medicare DSH Medicaid DSH Sim A Sim B Sim C Sim D Sim E
MEAN -32.82 74.68 59.50 15.18          
STD 203.64 123.36 85.76 40.11
N 256 256 256 256
Pearson's Correlation Coefficient**
Income Net of DSH 1.00 -0.48 -0.47 -0.49 -0.21 -0.19 -0.17 -0.27 -0.22
Joint DSH 1.00 0.99 0.96 0.47 0.45 0.48 0.57 0.52
Medicare DSH 1.00 0.91 0.48 0.45 0.49 0.58 0.52
Medicaid DSH 1.00 0.40 0.44 0.44 0.50 0.49
Sim A. All low-income days 1.00 0.92 0.90 0.77 0.87
Sim B. Days w/outMedicare SSI beneficiaries 1.00 0.97 0.79 0.89
Sim C. Days w/out Medicare SSI beneficiaries with wage index adjustment 1.00 0.81 0.90
Sim D. CMI-adjusted discharges w/out Medicare SSI beneficiaries 1.00 0.88
Sim E. Charges w/out Medicare SSI beneficiaries 1.00

** All values with p<.0001

The variables used to establish the allocation factors that we report in Table 7.6 are:

  • Simulation A: Proportion of inpatient days attributable to low-income patients.
  • Simulation B: Proportion of inpatient days attributable to non-Medicare low-income patients.
  • Simulation C: Proportion of inpatient days attributable to non-Medicare low-income days x wage index. This is the simulation reported in Table 7.5.
  • Simulation D: Proportion of discharges attributable to non-Medicare low-income patients.
  • Simulation E: Proportion of inpatient charges attributable to non-Medicare low-income patients.

There is no strong correlation between any of the allocation statistics and net income; however, the current Medicare and Medicaid DSH policies are more correlated with net income than any of the measures used in the alternative DSH policies (e.g. -0.48 for the joint DSH payment per day compared to -.17 for the Simulation C allocation policy). The allocation alternatives are strongly correlated with each other and moderately correlated with the current DSH policies.

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