Hospital Responses to New Disproportionate Share Payment Rules

To determine if a change in how Medicare disproportionate share payments were calculated increased the amount of uncompensated care reported by hospitals.

In 2018, Medicare changed the formula for determining disproportionate share payments to include uncompensated care. A difference-in-differences analysis was used to determine if different categories of hospitals altered their uncompensated care reporting and received higher disproportionate share payments following the change.

We linked 2011-2023 hospital cost report data from RAND with hospital characteristics from the American Hospital Association (AHA)'s annual survey and state uninsurance rate data from KFF.

Only some categories of hospitals responded to the policy change. System affiliated hospitals saw an 11% rise in UC reporting and a 20% rise in UC payments relative to individual hospitals. For-profit hospitals saw a 41% rise in UC reporting and a 4% rise in UC payments relative to nonprofit hospitals. Relative to nonprofit individual hospitals, for-profit hospital systems reported a 49% increase in uncompensated care reporting and an 18% increase in additional disproportionate share payments. Among for-profit health systems, the main effect was driven by the two largest hospital systems.

This change benefitted hospitals that reported higher levels of uncompensated care, including those that altered their reporting following the policy change. CMS could monitor the level of hospitals' uncompensated care and within this, charity care and bad debt, to ensure that hospitals are accurately and consistently reporting the data. More information is needed in order to ascertain whether hospitals' reporting changes are translated into practice or are limited to reporting. If limited to reporting, changes may be needed to ensure that large hospital systems with better reporting capacity do not receive the majority of Medicare disproportionate share and uncompensated care payments.