1
Hospital Uncompensated Care Issues

• Teresa Coughlin, M.P.H.
• Senior Research Associate
• The Urban Institute

2
Background and Purpose of Medicaid DSH Program

• In 1981 Congress mandated Medicaid DSH payments
• 15 billion spent on DSH payments in 2001
• Purpose
• maintain access for low-income
• provide financial help to hospitals serving large
  numbers of low-income patients
• Single biggest public program to help hospitals
  cover UC costs

3
How Does a DSH Program Work?

• Each state is different
• States largely determine design
• which hospitals get DSH
• allocation among hospitals
• DSH payment methodology
• number of DSH programs
• Federal DSH spending is capped
• states have preset federal DSH allotments

4
DSH Payments to Hospitals

• Nationally, 80 go to acute care hospitals, with
  most going to county-owned or private hospitals
• 20 to mental hospitals
• Distribution varies by state

5
Key Issues in DSH Program

• Highly controversial issue between federal
  government and states
• how states raise their share of DSH payments
• what share of DSH payments stick with hospitals
• distribution of federal DSH dollars across states
  
• several federal DSH reforms in 1990s
• Sometimes controversial issue within a state
• among hospitals
• between state and hospitals

6
Steps That States Can Take To Make Best Use of
DSH Funding

• Ensure state is spending its federal allotment
• Ensure true safety net providers receive enough
  DSH payments
• change DSH eligibility or allocation formulas
• Impose conditions on hospitals getting DSH
• e.g. must provide certain amount of free care or
  primary care
• Encourage hospital innovation
• CO, IN, MI and TX use DSH to fund
  insurance-like programs for uninsured

7
New Federal DSH Provisions

• New Provisions
• In 2003 cutbacks in federal DSH spending
• more than 1 billion affect 35 states
• In 2003 hospital-specific cap is expanded
• states can pay public hospitals 150 of UC costs,
  rather than usual 100
• Implications
• less money for UC
• better targeting of DSH funds with 150 option

8
Possible Federal Medicaid DSH Reforms

• Make it more akin to Medicare DSH
• Reallocate federal share of DSH
• national formula for state distribution
• distribution on state need (e.g. number of
  low-income persons) and fiscal capacity
• national formula for hospital allocation

9
Strategies To Help Prevent UC Costs

• Promote insurance initiativesMedicaid, SCHIP,
  HIFA waiver, ESI
• Encourage use of primary care
• expand network of community health centers (RHCs,
  FQHCs)

10
Other Ways to Help Pay for Hospitals UC

• Medicaid
• increase general Medicaid reimbursement
• Medicaid upper payment limit (UPL) strategies
• Increase state/local hospital subsidies

11
Major Differences Between Medicare DSH and
Medicaid DSH

• Size Medicaid DSH 3 times larger than Medicare
  (15 billion versus 5 billion)
• Federal funding Limited for Medicaid no limits
  for Medicare
• Formula Medicaid no national formula national
  for Medicare
• State role Large for Medicaid virtually no
  state role in Medicare