Analysis of the Joint Distribution of Disproportionate Share Hospital Payments. Financial Data

California hospitals are required to submit Annual Disclosure Reports containing financial and statistical information within four months of the close of the hospital's fiscal year. The Office of Statewide Health Planning and Development produces an electronic data file that contains selected information from the annual reports. We used the data submitted by the hospitals for fiscal years ending in 1998. The file contains 455 hospital reports, of which 383 are for hospitals classified as general acute care by the state. This includes cancer hospitals and children's hospitals that are excluded from the Medicare prospective payment system. The most common fiscal year ends are June 30 (39%) and December 31 (30%).

The report uses five payer categories: Medicare, Medi-Cal, County Indigent Programs, Other Third Parties (includes contractual purchasers and indemnity payers) and Other Payers. Medi-Cal patients enrolled in Medi-Cal HMOs are included in the Other Third Parties category. The County Indigent Programs category includes all patients for whom the county is responsible. The Other Payer category includes all patients not covered by a third party payer and includes self-pay patients and indigent patients who are not a county responsibility (CA OSHPD, 2000). While gross revenues by payer are reported separately for inpatient and outpatient services, information on contractual allowances and bad debt by payer is combined for inpatient and outpatient services. Key data that we used included the following:

• Gross revenues. Revenues by payer are collected separately for inpatient and outpatient services. Since Medi-Cal patients enrolled in HMOs are in the Other Third Parties category, Medicaid revenues are understated. About 51 percent of Medicaid enrollees are in managed care (KFF, 2002).
• Medicaid shortfalls. These can be determined only for fee-for-service enrollees only. The report provides information on Medicaid gross patient revenues, Medi-Cal contractual adjustments, and net revenues (gross revenues less contractual allowances and other deductions from revenue, including charity care and bad debt related to Medi-Cal non-managed care enrollees).
• Bad debt and uncompensated care. Bad debt is reported as a deduction from revenue and is not included in operating expense. A single line item is reported for bad debt.
• Medicaid DSH payments. Medicaid DSH payments are reported as a credit to Medicaid contractual adjustments. DSH funds transferred from the hospitals to a related public entity (i.e. intergovernmental transfers) are reported as a non-operating expense.

The California Association of Public Hospitals provided us with additional information on federal fiscal year 1998 DSH payments and IGTs.

New York hospitals file an annual institutional cost report with the New York State Department of Health. The cost report collects utilization and revenue information for 14 payer categories, including separate categories for Medicaid fee-for-service enrollees, Medicaid managed care enrollees, self-pay, charity care and courtesy care patients. Not all categories (including Medicaid HMO) are used consistently. Gross revenues, net revenues and bad debt by payer are reported by type of service. We used data from the reports filed for calendar year 1998 (the fiscal year for all hospitals is 1/1/98-12/31/98). The cost report also collects information on the hospital's contributions to the indigent care pool, the DSH payments that it received, and its DSH cap. The Greater New York Hospital Association provided us with an electronic file with selected data from the institutional cost report that also had supplemental information from the Department of Health on indigent care pool distributions. Key data that we used included the following:

• Gross revenues by payer. While the cost report provides for separate reporting of Medicaid fee-for-service and managed care revenues, the file we obtained did not include Medicaid managed care revenues in the Medicaid revenue data because of inconsistent reporting. Information on Medicaid managed care enrollees is often combined with data for other HMO enrollees. About 25 percent of Medicaid enrollees in New York are in managed care (KFF, 2002).
• Medicaid shortfalls. We could only determine the shortfalls for Medicaid fee-for-service enrollees.
• DSH payments. DSH distributions are reported as separate line items and are not included in Medicaid patient revenues. DSH provider assessments and contributions on behalf of third-party payer are also reported as separate line items. We did not include the latter in determining "new" DSH since the funds are essentially a "pass-through" from third-party payers that do not contribute directly to the indigent care pool.
• Bad debt and uncompensated care. Bad debt net of recoveries is reported by payer class by type of service. There are separate revenue lines for self-pay, charity care and courtesy care.

All non-federal hospitals in Wisconsin are required to submit audited financial data to the Bureau of Health Information within 120 days after the end of their fiscal year. The information is available electronically in a public use file. We combined the data submitted for hospital fiscal years ending in calendar year 1997 and 1998 to develop FY1998 financial information for each acute care hospital (based on the number of months covered by the respective reports that occurred during FY1998). Key data that we used included the following:

• Gross revenues by payer. Medicare and Medicaid managed care gross revenues are reported as specific line items. Gross charges billed to county general relief and self-pay patients are separately reported. Gross revenues billed to non-Wisconsin Medicaid programs are combined with billings to other government programs such as CHAMPUS and VA and are not included in our measure of low-income patient revenues.
• Medicaid shortfalls. Total Medicaid payments are separately reported for Medicaid fee-for-service and managed care enrollees. No breakdown is provided between inpatient and outpatient services. Disproportionate share payments are not separately identified from other Medicaid patient revenue.
• Uncompensated care and bad debt. Charity care is measured on the basis of revenue foregone at full-established rates. Courtesy allowances and employee discounts are separately reported. Charges written off as bad debts are reported as an expense.