We avoided establishing a direct DSH subsidy for inefficiencies by expressing the low-income measures as a percentage of revenues or costs rather than absolute dollar amounts. However, this approach also requires that the allocation formula include a measure to take into account differences in patient volume across hospitals (Table 6.2). While inpatient days or discharges could be used for this purpose, a better policy would be to take into account outpatient volume as well. Adjusted inpatient days and discharges convert outpatient volume into equivalent inpatient days or discharges. For example, total adjusted discharges equal total hospital discharges times the ratio of total hospital gross revenues to hospital inpatient gross revenues. The weight assigned to a given hospital would be determined as the product of its low-income patient measure and either adjusted patient days or discharges.
|Total adjusted days||Low-income measure X total inpatient days X total gross patient revenues / total inpatient gross revenues|
|Total adjusted discharges||Low-income measure X total inpatient discharges X total gross patient revenues / total inpatient gross revenues|
|Cost-adjusted days||Low-income measure X total adjusted days X wage index factor|
|Case-mix and cost-adjusted discharges||Low-income measure X total adjusted discharges X wage index factor X CMI|
|Cost-adjusted days and state's relative resources||Low-income measure X total adjusted days X index of state's resources to other states|