Analysis of the Joint Distribution of Disproportionate Share Hospital Payments. Disproportionate Amount of Care


Another distinguishing feature of safety net hospitals is that they provide a disproportionate amount of care to vulnerable populations. Several definitions have been used to quantify the amount of care. A key issue is whether it should be based on the volume of care provided to vulnerable populations or the uncompensated cost of that care. While the Medicare and Medicaid DSH programs identify a safety net hospital primarily on the volume of low-income patients it serves, another common strategy, especially in the research literature, is to designate safety net hospitals by their level of uncompensated care costs--that is, the costs of charity care and bad debt.

Measures that rely on revenue data or uncompensated care costs have potential for inaccurate reporting and "gaming". For example, MedPAC found that some hospitals include care not covered by Medicaid as bad debt expense (MedPAC 1998) even though contractual allowances are not bad debt. It is possible data based on gross revenues (such as percentage of gross charges attributable to low-income patients) or utilization (such as the percentage of inpatient days and outpatient visits that are attributable to low-income patients or to the uninsured) may provide better defined measures of serving vulnerable populations. We discuss potential measures of financial vulnerability in greater detail in the next section.

A second issue is how to decide whether the care to vulnerable populations is disproportionate to that provided by other hospitals. Medicare's policies establish a minimum DSH patient percentage threshold that hospitals must meet in order to become eligible for DSH payments under the PPS for operating costs. MedPAC recommends that a threshold be set so that between 50-60 percent of hospitals would qualify for DSH payments. The Medicaid law requires that at a minimum States designate as disproportionate share hospitals all hospitals meeting one of the following criteria: a Medicaid inpatient utilization rate one standard deviation or more above the mean for all hospitals in the state, or a low-income utilization rate exceeding 25 percent.

Researchers have tended to focus on a more limited set of hospitals with relatively high uncompensated care costs. For example, Baxter and Mechanic (1997) identified hospitals in the top decile of hospitals providing the most bad debt and charity care in a given community as safety net providers. In another study, safety net hospitals were defined as those with the highest (the top 10 percent of hospitals) level of uncompensated care costs relative to operating costs (Fishman 1997). Others have defined safety net hospitals as those that provide high levels of uncompensated care--10 percent or more--relative to a hospital's total costs (Cunningham and Tu 1997).

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