Analysis of the Joint Distribution of Disproportionate Share Hospital Payments. Policy Issues

09/01/2002

The literature concerning safety net hospitals and the current policies for Medicare and Medicaid DSH payments suggest a set of policy issues related to the distribution of DSH funds.

  • To what extent should DSH funds be targeted on core safety net providers that are financially vulnerable? Should hospitals that are able to cover losses attributable to uncompensated care and Medicaid shortfalls receive subsidies? Some hospitals that provide a substantial volume of services to low- income patient populations are not financially vulnerable because they are able to generate sufficient revenue (in the absence of government subsidies) to cross-subsidize the cost of caring for low- income patients.
  • How can the allocation policy be structured to maintain or enhance level of effort regarding Medicaid eligibility and reimbursement rates as well as programs to subsidize care provided to the uninsured?
  • Should a threshold be used to target DSH payments on those hospitals that serve as core safety net hospitals? What are the implications for communities where caring for the uninsured is shared across hospitals relative to those where it is concentrated in a few hospitals?

Underlying these major policy issues are empirical questions regarding the sensitivity of the allocations to different measures that could be used to define financially vulnerable safety net hospitals. These questions are important in understanding the impact the policy choices could have on the distribution of DSH funds to particular hospitals and identifying those choices where administrative preferences for readily available measures would have little practical effect on the distributions. In the remainder of this report, we examine the current distribution of DSH across classes of hospitals and analyze how different measures of financially vulnerable safety net hospitals would affect 1) the set of hospitals eligible to receive federal subsidies and 2) the distribution of funds among those hospitals.

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