Analysis of the Joint Distribution of Disproportionate Share Hospital Payments. New York


The New York Health Care Reform Act (HCRA) substantially deregulated the state's inpatient hospital rate system effective January 1, 1997 but continued to require non-Medicare payers to make surcharge payments to subsidize indigent care and other health care initiatives1. The surcharges vary by payer and are lower if the payer makes payments directly to the indigent care pool instead of the hospital remitting the surcharge amounts. The indigent care pool is also funded by provider taxes of 1% of inpatient gross receipts from all hospitals and a 0.7% assessment on gross receipts from all patient services from distressed hospitals. The payer and hospital contributions to the fund qualify for federal DSH matching funds.

1998 marked the mid-way transition from the pre-HCRA indigent pool to HCRA. The anticipated funding level for the indigent care pool was $738 million but full funding did not occur. Most hospitals received 25% of their 1996 distribution from the old indigent care pool and 75 percent of a new payment scale. The formula for distributing the indigent care pool under the new scale is based on a hospital's uncompensated care needs. Need for general hospitals is defined as losses from bad debts (reduced to costs) and the costs of charity care expressed as a percentage of reported costs. Hospitals must have at least 0.5% need to qualify for funds. Funds are distributed using a sliding scale:


Targeted Need Percentage % Reimbursement Attributable
to that Portion of Need
0 to .5% 60%
>.5 to 2% 65%
> 2 to 3% 70%
> 3 to 4% 75%
> 4 to 5% 80%
> 5 to 6% 85%
> 6 to 7% 90%
> 7 to 8% 95%
> 8% 100%

Some funds were reserved from the pool for adjustments to non-public hospitals whose need was greater than 4% of reported costs and were distributed based on the hospital's share of aggregate need over 4%. Also, special phase-in provisions applied to non-public financially distressed hospitals and major public hospitals.2 Taxes for distressed hospitals were phased-in with 25% owed in 1998.

1.  A surcharge is also used to fund graduate medical education.

2.  The Health Care Reform Act of 2000 provided that tobacco settlement funds be used to fully fund the indigent care pool and added supplemental adjustments for rural and high need non-public hospitals ($82 million) and for indigent care at teaching hospitals ($27 million).

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