Analysis of the Joint Distribution of Disproportionate Share Hospital Payments. How Should Financial Vulnerability Be Defined?


Developing and evaluating alternative methods for distributing Medicare and Medicaid DSH payments requires measures of the financial pressure faced by each safety net hospital. The measures serve two potential purposes. First, one or more of them could be used as an explicit factor in allocating funds to safety net hospitals. The measures most appropriate for this purpose would be those that are directly related to serving low-income populations such as shortfalls from Medicaid and local indigent care programs and/or uncompensated care. Second, more general measures such as a hospital’s margin net of DSH payments can be used to evaluate how well the DSH allocation policy targets financially vulnerable safety net hospitals without being explicitly incorporated into the allocation formula. Comparing total margin net of DSH payments to total margin including DSH subsidies under alternative DSH allocation methodologies provides an indication of how a hospital’s financial viability would be affected assuming no behavioral changes occur in the services it provides or in the revenues it receives from Medicaid and other payers.

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