As noted earlier, data were not available that allowed us to examine alternative allocation policies with a national set of hospitals. Using the hospitals that are represented in the HCUP national sample that we were able to link with hospital-specific Medicaid DSH payments (100% inpatient claims from a 20% sample of hospitals in 15 states), we examined the relationship between key low-income patient measures that could be used in an allocation formula (e.g. proportion of days, discharges, and revenues and case-mix index including/excluding Medicare SSI patients). The degree of correlation between the measures can be used to predict whether the choice of the measure (utilization or revenue) used to describe hospital’s low-income patients is likely to have a significant effect on the distribution of funds. We were able to evaluate only inpatient utilization and gross revenue low-income patient measures with the HCUP data. The HCUP does not have outpatient data or the uncompensated care data needed to measure financial risk.
There are several findings from our HCUP analysis that have import in designing a DSH allocation policy. First, in defining safety net hospitals, it appears that the choice of patient population to be included in the allocation statistic (e.g. with or without Medicare SSI beneficiaries) is more important than how care provided to those patients is quantified. It may not be administratively feasible to take into consideration all low- income patients. A hospital’s proportion of low-income days is more highly correlated with its proportion of Medicaid days than either its proportion of Medicare SSI and Medicaid patients or its Medicare DSH patient percentage.
The different measures quantifying the amount of care provided to a low-income population (days, discharges, or charges) are highly correlated with each other. However, the choice could have implications for certain hospitals. Those with 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.
Neither the current DSH allocation policies nor the alternatives that we examined target DSH payments to safety net hospitals in a way that is strongly correlated with net income.3 However, the current DSH policies are more highly correlated than the alternatives that we examined. For example, the correlation between the joint DSH payments to safety net hospitals and their net income was -.48 compared to only -.17 for an allocation policy based on non-Medicare low-income patient days with a wage-index adjustment.
3. For this purpose, safety net hospitals were defined as acute care hospitals with at least 20 percent inpatient days attributable to low-income patients.