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


Drawing from the models discussed in Chapter 6, we simulated alternative policies for determining eligibility to receive DSH funds and how the funds would be allocated to eligible acute care facilities. We performed separate simulations for each state so that only intra-state redistributions occur and there are no inter-state redistributions. Total DSH funding in each alternative is the sum of the estimated Medicare payments using current law rules and the federal share of DSH payments to the hospitals in the simulation. Hospitals that are excluded from the Medicare prospective payment system and any Medicaid DSH funds that they received were not included in the simulation. In addition, there were a number of acute care hospitals that we were unable to match with our analysis file, including the New York Health and Hospitals Corporation facilities and several other large safety net hospitals (Table 8.1).

Table 8.1
Summary of State Financial Data
Merged With HCUP/Medicare Cost Report Analysis File
  California New York Wisconsin
Period covered by state financial reports Hospital fiscal years ending in CY1998 CY1998 FY1998
N acute care hospitals in report 383 210 128
Medicare participating acute care hospitals in analysis file 383 220 125
N hospitals matched to analysis file 313 188 113

Our baseline comparison is the distribution of current law Medicare funds and "new" Medicaid DSH funds. Since Medicaid "new" DSH and the federal share of DSH are not the same, total DSH funds to the hospitals changed between the current law baseline simulation using "new" DSH and the alternative policy simulations using the federal share of DSH.

Below, we report on the results for four basic simulations designed to show the implications of some of the policy choices regarding the measure used to define eligible hospitals and alternative allocation policies. The simulation parameters are summarized in Table 8.2 and reflect policies that focus increasingly on hospitals with the most financial risk. Simulation A uses the same allocation policy as we used for the HCUP simulation in Chapter 7. It uses the proportion of non-Medicare inpatient days as the low-income patient measure. Simulation B allocates funds based on gross revenues attributable to patients covered by Medicaid and local indigent care programs, self-pay and charity care patients. It uses a lower threshold because Medicare SSI patients are not included in the measure. Simulation C uses financial risk as a percentage of operating costs as the LIP measure and has a 5% threshold. Simulation D also uses financial risk but uses a sliding scale to target additional funds to hospitals with the highest proportion of financial risk.

Table 8.2 
Simulations Using 3-State Data
Simulation Type of Measure Allocation Factor
A Inpatient utilization (% Non-Medicare LIP days-15%) x adjusted days x WI
B Gross revenue (%Non-Medicare LIP GR-15%) x adjusted days x WI
C Financial risk (FR as % operating cost - 5%) x adjusted days x WI
D Financial risk (FR as % operating cost - 5%) x adjusted days x WI x scaling factor(4)

4.  The formula is:

  • If FR GE .05 and LT .10, scaling factor = (FR-.05)*.2
  • If FR GE .10 and LT .15, scaling factor = (.01 + (FR-.10)*.3
  • IF FR GE .15 and LT .20, scaling factor = (.025 + (FR-.15)*.4
  • IF FR GE .20, scaling factor = (.045 + (FR-.20)*.5

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