Table 4.1 summarizes the distribution of Medicare payments across classes of hospitals using both the FY1998 payment rules and the rules that will be in effect in FY2003. The latter rules reflect the BIPA changes in the payment formula and the expiration of the BBA across-the-board payment reductions. We estimate FY 1998 actual DSH payments at $4.83 billion. If the FY2003 DSH payment rules had been in effect and all other FY1998 payment parameters remained unchanged, payments would have been $358 million higher, or $5.18 billion. Consistent with the changes in the formula, most payment increases occur among rural hospitals and small urban hospitals. Columns B and C show the distribution of hospitals and Medicare inpatient days within each hospital class regardless of whether they received DSH payments.
Following is a summary of key findings.
Urban/Rural Status. Hospitals located in large urban areas (defined as having a population of 1 million or more) received the largest share of FY1998 Medicare DSH payments. Although they provided only 49% of total Medicare inpatient days, they received 65% of total Medicare DSH payments. The BIPA rules reduce this share only slightly to 62%. Although rural hospitals provided 19% of total Medicare inpatient days, they received only 3.1% of the Medicare DSH payments. Under BIPA, the rural share of DSH payments will more than double to 7.2%.
Bed Size. Larger urban hospitals receive a disproportionately greater share of Medicare DSH payments. Hospitals with 500 beds or more provided 32% of Medicare inpatient days and received 43% of Medicare DSH funds in FY1998. Actual FY1998 payments to rural hospitals had the same bias towards larger hospitals as urban hospital payments. Rural hospitals with 200 beds or more provided 27% of Medicare inpatient days but received 47% of Medicare DSH payments to rural hospitals. At the same time, hospitals with less than 100 beds provided 42% of Medicare inpatient days but received only 17% of Medicare DSH payments. Among rural hospitals, the BIPA rules will reduce the share of DSH payments to those with more than 200 beds to 35%, and raise the share of DSH payments to those with fewer than 100 beds to 32%. The BIPA rules will not affect the relative distribution of Medicare DSH funds among urban hospitals.Region. The Pacific and East North Central regions have the largest disparities between the share of Medicare DSH payments they received and their share of Medicare inpatient days (20% vs. 11%, and 10.5% vs. 17%, respectively). The differences are largely attributable to the factors other than DSH patient percentage that affect payment distribution. Payments are made on a per discharge basis and are a function not only of the hospital's DSH patient percentage but also its case mix and wage index. The hospitals in the Pacific region are characterized by a shorter length of stay, high case mix, and high hospital wages. Hospitals in the East North Central have a longer length of stay, lower wages, and a lower case mix index. The distribution across regions was not affected by the BIPA changes.
Hospital Type. To be consistent with tables on Medicaid DSH payments that follow, we used the type of hospital assigned by the state in reporting Medicaid payments as the first determinant of provider type. We found several situations in the Medicaid data where a Medicare acute care hospital was classified as a psychiatric facility by the state even though the hospital had a Medicare acute care provider number. It appears that in these cases the Medicaid DSH payments are based on the psychiatric care provided by the institution rather than its acute care services. Ideally, the Medicaid DSH payments would be assigned to the distinct part psychiatric units in these situations and would not be considered acute care hospital payments. However, a provider-by-provider basis determination would be needed that this is the correct interpretation and that the discrepancy does not result from errors in state reporting of provider type or our assignment of provider numbers. In the interim, this accounts for the seemingly anomalous situation where psychiatric facilities receive Medicare DSH funds.2
Ownership. DSH payments are more evenly distributed across hospitals by type of ownership than might be expected based on the traditional role of governmental providers in providing care to low-income patients. Not-for-profit hospitals received the bulk of Medicare DSH payments - 66% of the total - but somewhat less than their share of total Medicare inpatient days (73%). Consistent with their role in providing a significant amount of care to low-income patients, a somewhat larger share of DSH payments went to state and local hospitals. Governmental hospitals provided 16% of Medicare inpatient days and received 21% of Medicare DSH funds. The BIPA changes do not influence this pattern significantly. Interestingly, proprietary hospitals are not generally viewed as safety net hospitals; however, their share of DSH payments (12%) approximates their share of inpatient days (11%).
Case Mix. The relative share of Medicare DSH payments increases as the Medicare case mix index increases. The hospitals in the highest quartile of Medicare case mix index provided 54% of the Medicare inpatient days and received 67% of the payments. This result is consistent with larger tertiary care facilities providing a higher proportion of care to low-income patients.
As expected, Medicare DSH payments are skewed towards hospitals that serve a high percentage of Medicare beneficiaries on SSI and Medicaid patients.3 Hospitals for which Medicare beneficiaries on SSI and Medicaid patients constitute at least 20 percent of the patient census provide about 37% of Medicare inpatient days but receive more than 80 % of the DSH payments.
- Even though the DSH payment is an add-on to Medicare DRG payments, payments decrease as the percentage of Medicare utilization increases. For example, hospitals with 25-49 percent Medicare utilization account for 33% of the days but receive 53% of the DSH payments under FY2003 rules. Hospitals with 50-64 percent Medicare utilization account for 45.3 % of the days but receive only 30% of DSH payments. This is probably a result of the Medicaid utilization in the DSH formula being expressed as a percentage of total inpatient days. By definition, hospitals that have high Medicare utilization will have a low Medicaid percentage in their DSH patient percentage.
- Less than 10% of Medicare patients in most hospitals are entitled to SSI. Once this threshold is passed, hospitals begin to receive a higher percentage of DSH payments relative to their inpatient utilization. For example, hospitals with 10-20 percent of their Medicare population eligible for SSI account for 26 % of Medicare inpatient days but receive 46 % of Medicare DSH payments.
- Medicaid utilization can be expressed either as a percentage of non-Medicare days (the better measure of the proportion of the patient population that is low-income) or as a percentage of total inpatient days (which is used in the Medicare DSH formula). When looked at as a percentage of non-Medicare patients, hospitals on average do not benefit from Medicare DSH until their Medicaid utilization rate exceeds 30 percent. When looked at as a percentage on total inpatient days, hospitals in the upper quartile of Medicaid utilization rates for their state benefit the most. They account for 28% of Medicare inpatient days and 62.5% of the Medicare DSH payments. Hospitals with a Medicaid utilization rate that is at least one standard deviation above the state mean furnish 21% of Medicare inpatient days and receive 38% of DSH payments.
Teaching Status. The distribution of payments across classes of teaching hospitals reflects the commitment of most major teaching hospitals to serving low-income patients. The 237 teaching hospitals in the analysis file with 100 or more residents account for 36 % of Medicare inpatient days and receive 55% of Medicare DSH payments.
2. By design, the Medicare DSH program applies only to acute care hospitals that are paid under the prospective payment system. Hospitals that are excluded from the prospective payment system are reimbursed on a reasonable cost basis subject to rate of increase (TEFRA) limits and do not receive DSH payments. Excluded units of acute care hospitals are assigned separate provider numbers (and, under the Medicare convention for assigning Medicare provider numbers, an acute care unit of a psychiatric facility would receive the main provider number). We found a several situations in the Medicaid data where a Medicare acute care hospital was classified as a psychiatric facility by the state.
3. We use as our measure the percentage of total inpatients that are either Medicare beneficiaries on SSI or non-Medicare patients who are entitled to Medicaid. This differs from the DSH patient percentage, which is the percentage of Medicare patients who are entitled SSI plus the percentage of total patients who are non-Medicare patients entitled to Medicaid.