Analysis of the Joint Distribution of Disproportionate Share Hospital Payments. Methodology


Medicare DSH payments are a percentage add-on to the federal PPS payment rates for operating and capital costs. For an individual discharge, the standard payment is adjusted for the relative weight for the DRG to which the case is classified. The case mix index (CMI) represents the average case weight for all discharges at the hospital over the fiscal year.

The general formula that we used to estimate a hospital's total DSH payments was:

DSHpayi = ((wage-adjusted operating standardized amounti * DSH operating factori) + (geographic-adjusted federal capital rate * DSH capital factor)) * CMIi * Dischargesi

We also took into account special payment provisions that affect the DSH payments for certain types of hospitals.

  • For operating payments, sole community hospitals (SCH) receive the higher of 1) the federal payment amount (after adjustment for DSH and indirect medical education (IME) payments and outliers) and 2) a hospital-specific rate.1 We estimated the amount of DSH payable to SCH hospitals paid the federal rate. For informational purposes, we also estimated the amount of DSH payments that would have been paid to SCH hospitals that are paid the hospital-specific rate. We distinguished between the two classes of hospitals when aggregating DSH data.
  • Hospitals may request annual reclassification by the Geographic Reclassification Review Board (MGCRB) for purposes of the standardized amount and/or wage index. We took the effect of the reclassifications into account. The reclassifications can affect the standardized amount or geographic adjustment factor applicable to the hospital.

1.  Medicare dependent hospitals receive 1) the federal payment amount plus 2) 50 percent of the difference between payments based on the hospital-specific rate and payments based on the federal rate, if the hospital-specific rate is higher. Thus, the MDH provision does not affect the level of DSH payments.

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