Analysis of the Joint Distribution of Disproportionate Share Hospital Payments. Conclusions

09/01/2002

There are several findings from the HCUP analysis that have import in designing a DSH allocation policy. First, it appears that the patient population (e.g., with or without Medicare SSI beneficiaries) included in the allocation statistic is more important than how the care provided to those patients is quantified. Ideally, the allocation statistic would take into consideration all low-income patients. If this is not administratively feasible, using Medicaid patients only is preferable to "joint" days or the Medicare DSH patient percentage, both of which are less correlated with low-income patients.

The different measures of the amount of 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.

Neither the current DSH allocation policies nor the alternatives that we examined in the analysis target DSH payments in a way that is strongly correlated with net income. This is an issue that warrants further investigation and understanding. The different Medicare formulae and the Medicaid DSH program's flexibility may provide mechanisms to target financially vulnerable hospitals in a way that a single formula-driven allocation may not. Targeting financially vulnerable safety net hospitals may require taking into consideration more factors than the amount of care a hospital provides to low-income patients.

Finally, the diversity of the Medicaid DSH programs makes it difficult to draw conclusions from an analysis of selected states. The lack of information on "new" Medicaid DSH funds further compounds the problem. Since we have data from only selected states- and not even all the hospitals in those states- we have not presented information on the redistributions of DSH payments that might occur across states under the alternative allocation policies. Nevertheless, it is important to not lose sight of the differences in DSH expenditures across states and the likelihood that a national allocation policy would result in substantial state-level redistributions as well as redistributions across classes of hospitals.

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