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

We used the HCUP 100% SID files for calendar year 1997 to construct measures on the percentage of inpatient days and discharges attributable to low-income patients. We were concerned that the claims data might under-report the number of inpatient days and that our measure of Medicaid patients in the CA and New York financial data did not include Medicaid managed care enrollees. To adjust for this in our estimate of low-income utilization, we applied the HCUP percentages to the total inpatient days reported in the financial data.

To define the Medicaid shortfall, we first estimated Medicaid costs by applying an overall cost-to-charge ratio to Medicaid gross charges. We then estimated the amount received or receivable from the Medicaid program (gross charges less contractual allowances) net of any DSH amounts reported as Medicaid patient revenue (or, in the case of WI, the amount reported by the state for FY1998). By subtracting only the contractual allowances, bad debts attributable to Medicaid patients are included with other bad debts.

We estimated the costs of uncompensated care and bad debts by applying the hospital's cost-to-charge ratio to the gross charges reported for charity care and the amounts reported as bad debt.

We defined the hospital's financial risk as the sum of its Medicaid (fee-for-service) shortfalls, bad debt, and uncompensated care costs. We measured the hospital's financial risk per adjusted day and as a percentage of operating costs.

We were interested in estimating what the hospital's margin would have been in the absence of DSH payments. We subtracted actual Medicare DSH payments and, for Wisconsin hospitals, the amounts reported by the state in FY1998 Medicaid DSH payments from net income. For New York and California hospitals, we subtracted the hospital's "new" Medicaid DSH payments, i.e. the difference between the DSH payments it received and its contributions to the DSH fund from net income. We calculated total margins (operating and non-operating) for California and Wisconsin hospitals net of "new" DSH. Our information for New York hospitals was limited to operating margins.