Hospital Responses to New Disproportionate Share Payment Rules

Area of Science:

• Health Economics
• Healthcare Policy
• Hospital Financial Management

Background:

• Medicare's disproportionate share payments (DSH) are designed to support hospitals serving a large number of low-income patients.
• A 2018 policy change altered the DSH payment formula to incorporate uncompensated care (UC) data.
• The impact of this policy change on hospital reporting and DSH payments requires investigation.

Purpose of the Study:

• To evaluate whether the 2018 Medicare DSH payment formula change influenced hospitals' reporting of uncompensated care.
• To assess if different hospital categories experienced differential changes in UC reporting and DSH payments post-policy change.

Main Methods:

• A difference-in-differences analysis was employed to compare changes in UC reporting and DSH payments.
• Data from 2011-2023 hospital cost reports (RAND), American Hospital Association (AHA) surveys, and KFF uninsurance rates were linked.
• The analysis categorized hospitals by system affiliation (system vs. individual) and ownership (for-profit vs. nonprofit).

Main Results:

• System-affiliated hospitals reported an 11% increase in UC and a 20% increase in UC payments compared to individual hospitals.
• For-profit hospitals reported a 41% increase in UC and a 4% increase in UC payments compared to nonprofit hospitals.
• For-profit hospital systems showed the most significant changes, with a 49% rise in UC reporting and an 18% rise in DSH payments relative to nonprofit individual hospitals, largely driven by the two largest systems.

Conclusions:

• The policy change disproportionately benefited hospitals that increased their UC reporting, particularly for-profit systems.
• The Centers for Medicare & Medicaid Services (CMS) should monitor UC reporting, including charity care and bad debt, for accuracy.
• Further research is needed to determine if reporting changes reflect actual practice, and policy adjustments may be necessary to ensure equitable DSH payment distribution.