Hailey Tran
Disproportionate Share Hospitals (DSH) are hospitals that serve a disproportionately large number of low-income patients and receive payments to cover the costs of care for uninsured patients. The United States government provides funding to these hospitals through the DSH programs, which help to offset hospitals' uncompensated care costs and improve access for Medicaid and uninsured patients. DSH payments are made directly to hospitals rather than plans and are subject to various federal and state regulations, including annual reporting requirements.
| Characteristics | Values |
|---|---|
| Definition | Hospitals that serve a disproportionate number of low-income patients and receive payments to cover the costs of care to uninsured patients |
| Funding | The United States government provides funding to hospitals that treat indigent patients |
| Funding Amount | In the fiscal year 2021, Medicaid made a total of $18.9 billion in DSH payments ($8.1 billion in state funds and $10.8 billion in federal funds) |
| Medicare DSH Adjustment | The primary method is based on a complex statutory formula that results in the Medicare DSH patient percentage |
| Medicare DSH Adjustment | The alternate method is for urban hospitals with more than 100 hospital beds that can demonstrate that more than 30% of their total net inpatient care revenues come from state and local government sources for indigent care |
| History | States began making Medicaid DSH payments in 1981 |
| History | In 1991, Congress sought to restrict states' ability to tap provider funds in order to claim federal matching funds |
| History | In 1998, $15 billion in Medicaid DSH payments were issued to hospitals |
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What You'll Learn
What are Disproportionate Share Hospitals (DSH)?
Disproportionate Share Hospitals (DSH) are hospitals that serve a disproportionate number of low-income patients and receive payments to cover the costs of care for uninsured patients. The United States government provides funding to these hospitals through the DSH programs, allowing facilities to receive at least partial compensation.
The first set of DSH reports was submitted in 2010, covering state plan rate years (SPRYs) from 2005 to 2007. SPRYs 2005 to 2010 were deemed transition years to allow the Centers for Medicare & Medicaid Services (CMS), states, hospitals, and auditors to develop and refine their procedures without financial penalties.
There are two primary methods for a hospital to qualify for the Medicare DSH adjustment. The first is based on a complex statutory formula that results in the Medicare DSH patient percentage, which is equal to the sum of the percentage of Medicare inpatient days attributable to patients entitled to both Medicare Part A and Supplemental Security Income and the percentage of total inpatient days attributable to patients eligible for Medicaid but not eligible for Medicare Part A. The second method is for urban hospitals with more than 100 beds that can demonstrate that more than 30% of their total net inpatient care revenues, other than Medicare or Medicaid, come from state and local government sources for indigent care.
Medicaid DSH payments are statutorily required payments intended to offset hospitals' uncompensated care costs to improve access for Medicaid and uninsured patients, as well as the financial stability of safety-net hospitals. In fiscal year (FY) 2021, Medicaid made a total of $18.9 billion in DSH payments ($8.1 billion in state funds and $10.8 billion in federal funds).
In 1989, state budget experts discovered that they could claim federal DSH funds without spending general state funds, using the DSH payment as a mechanism to mitigate hospitals' financial distress. This led to states making large DSH payments and earning federal matching dollars, with the hospitals receiving their contributions back. However, Congress sought to restrict this practice by enacting the Voluntary Contribution and Provider-Specific Tax Amendments of 1991, which included provisions such as banning provider donations and limiting provider taxes.
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How do hospitals qualify for DSH status?
Disproportionate Share Hospitals (DSH) are defined in Section 1886(d)(1)(B) of the Social Security Act. DSH hospitals serve low-income patients and receive payments from the Centers for Medicare & Medicaid Services to cover the costs of providing care to uninsured patients.
There are two methods for a hospital to qualify for the Medicare DSH adjustment. The primary method is for a hospital to qualify based on a statutory formula that results in the DSH patient percentage. The DSH patient percentage is equal to the sum of the percentage of Medicare inpatient days attributable to patients eligible for both Medicare Part A and Supplemental Security Income (SSI), and the percentage of total inpatient days attributable to patients eligible for Medicaid but not Medicare Part A. The DSH patient percentage is defined as:
> The alternate special exception method is for large urban hospitals that can demonstrate that more than 30 percent of their total net inpatient care revenue.
The second method includes hospital patient days used by patients who, for those days, were eligible for medical assistance under a state plan approved under Title XIX (Medicaid) but were not entitled to Medicare Part A. This number is divided by the total number of hospital patient days for that same period. Hospitals whose DSH patient percentage exceeds 15% are eligible for a DSH payment adjustment based on another statutory formula. The formula varies for urban hospitals with 100 or more beds and rural hospitals with 500 or more beds, hospitals that qualify as rural referral centers or sole community hospitals, and so on.
To qualify for the 340B program, hospitals must meet three requirements. The first requirement, known as the government ownership or government control requirement, mandates that the qualifying hospital be owned or operated by a unit of state or local government, be a public or private non-profit corporation that has been formally granted governmental powers by a unit of state or local government, or be a private non-profit hospital with a contract with a state or local government to provide health care services to low-income individuals who are not entitled to benefits under Medicare or Medicaid. The second criterion requires that the hospital have a sufficient Medicare DSH adjustment percentage. DSH hospitals must have an adjustment percentage greater than 11.75% for the most recent cost-reporting period ending before the calendar quarter involved. The third criterion is that DSH hospitals, children's hospitals, and freestanding cancer hospitals that meet the first two criteria are eligible to participate in the 340B program if they sign a written certification stating that they will not obtain covered outpatient drugs through a group purchasing organization (GPO) or other group purchasing arrangement.
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How are DSH payments calculated?
Disproportionate Share Hospitals (DSH) serve a disproportionate number of low-income patients and receive payments to cover the costs of care for uninsured patients. The United States government provides funding to hospitals that treat indigent patients through the DSH programs, under which facilities are able to receive at least partial compensation.
DSH spending has increased over the years, and federal policymakers have grown concerned about the possibility of some states misusing DSH funds. In 1991, Congress sought to restrict states' abilities to claim federal matching funds by enacting the Voluntary Contribution and Provider-Specific Tax Amendments of 1991, which banned provider donations and limited provider taxes. This was followed by the Omnibus Budget Reconciliation Act of 1993, which made recycling more costly for hospitals. Despite these efforts, the practice of recycling persisted until the Centers for Medicare and Medicaid Services (CMS) began examining the practice on a state-by-state basis.
The calculation of DSH payments varies across states, but there are some common criteria. Firstly, states must make DSH payments to deemed DSH hospitals, which meet at least one of two criteria: a Medicaid utilization rate at least one standard deviation above the state mean, or a low-income inpatient utilization of over 25%. States may also designate other hospitals to receive DSH payments, provided they have a Medicaid utilization rate of at least 1% and employ obstetricians who treat Medicaid enrollees.
The calculation of hospital-specific DSH limits has also evolved over time. The Consolidated Appropriations Act, 2021 (CAA), changed the methodology to include only costs and payments associated with Medicaid-eligible individuals where Medicaid is the primary payer. Additionally, Section 1923(g)(2) of the CAA provides an exception for hospitals in the 97th percentile or above regarding Medicare Supplemental Security Income (SSI) days or the percentage of Medicare SSI days to total inpatient days. These hospitals can use the higher value resulting from calculations before or after the CAA.
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How do DSH payments vary by state?
Disproportionate Share Hospital (DSH) payments are intended to provide financial assistance to hospitals that care for vulnerable populations, including children, the disabled, and the elderly. These hospitals also provide critical community services such as trauma and burn care, maternal and child health, and disaster preparedness resources.
The amount of DSH payments that each state can make to hospitals varies, with some states providing DSH payments to nearly all their hospitals, while others only provide payments to a select few. Federal law establishes an annual DSH allotment for each state, limiting Federal Financial Participation (FFP) for total statewide DSH payments made to hospitals. States have the flexibility to determine the amount of DSH payment made to each provider, as long as they meet the minimum criteria.
The specific methodologies for DSH payments are outlined in each state's Medicaid state plan. Federal statute requires that minimum payments to DSH hospitals are determined using one of two methodologies: one that increases DSH payments in proportion to the extent that a hospital's Medicaid utilization exceeds the mean, and another that varies by hospital type and applies equally to all hospitals of each type, relating to Medicaid and low-income utilization.
The Centers for Medicare & Medicaid Services (CMS) play a significant role in guiding and enforcing DSH-related rules and requirements. For instance, in 2019, CMS issued a final rule for distributing reductions among states, aiming to implement reductions to state Medicaid DSH allotments. Despite these efforts, MACPAC's analyses suggest that the methodology does not significantly improve the relationship between DSH allotments and levels of hospital uncompensated care.
In conclusion, DSH payments vary by state due to factors such as federal allotments, state-specific criteria, and methodologies outlined in Medicaid state plans. While the intention behind DSH payments is to support hospitals serving vulnerable populations, the effectiveness of these payments in relation to hospital uncompensated care remains a subject of discussion.
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How do DSH payments impact hospital finances?
Disproportionate Share Hospital (DSH) payments are intended to improve access for Medicaid and uninsured patients and enhance the financial stability of safety-net hospitals. DSH payments are made to hospitals that serve a large number of Medicaid and uninsured patients, covering the costs of care for these patients. Federal law mandates that state Medicaid programs provide DSH payments to eligible hospitals, with an annual DSH allotment set for each state. These payments are adjusted based on factors such as the hospital's size and location, with urban hospitals and teaching hospitals receiving a significant proportion of total DSH payments.
The impact of DSH payments on hospital finances is significant. Firstly, they provide a crucial source of funding for hospitals serving a disproportionate number of low-income patients. By covering uncompensated care costs, DSH payments help hospitals improve their financial stability and ensure they can continue providing access to care for vulnerable populations. This is particularly important for safety-net hospitals, which rely on DSH payments to offset the costs of serving a high volume of Medicaid and uninsured individuals.
Secondly, the history of DSH payments has been marked by fluctuations in spending levels and policy changes. Initially, states had flexibility in determining DSH payment amounts, resulting in slow uptake and concerns about misuse of funds. In response, Congress implemented caps on DSH funds and created hospital-specific limits tied to the actual cost of uncompensated care. These measures aimed to control spending and ensure funds were directed appropriately.
Additionally, DSH payments have been subject to federal policy changes and court rulings. For example, the Medicare DSH adjustment provision under the Affordable Care Act established additional payments for uncompensated care, while court decisions have influenced the methodology for calculating hospital-specific DSH limits. These changes can impact hospital finances by altering the availability and distribution of DSH funds.
Moreover, DSH payments are linked to specific requirements and reporting obligations. Hospitals receiving DSH payments must adhere to guidelines and undergo annual independent audits to certify their eligibility and ensure proper utilization of funds. These audits verify that DSH payments do not surpass allowable uncompensated care costs and that hospitals accurately report payments, spending, and utilization data. This accountability measure helps maintain the integrity of DSH funding and ensures its alignment with intended purposes.
In conclusion, DSH payments have a substantial impact on hospital finances, particularly for those serving a high volume of Medicaid and uninsured patients. By providing funding to offset uncompensated care costs, DSH payments enhance financial stability and improve access to care for vulnerable populations. However, the evolution of DSH policies and the implementation of caps reflect the ongoing efforts to balance financial support for hospitals while maintaining fiscal responsibility in the healthcare system.
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Frequently asked questions
Disproportionate share hospitals (DSH) serve a disproportionate number of low-income patients and receive payments to cover the costs of care for uninsured patients.
Hospitals can qualify for the Medicare DSH adjustment by using a complex statutory formula that results in the Medicare DSH patient percentage. This is calculated by determining the percentage of Medicare inpatient days for patients entitled to Medicare Part A and Supplemental Security Income, as well as the percentage of total inpatient days for patients eligible for Medicaid but not Medicare Part A.
Federal law requires state Medicaid programs to make DSH payments to qualifying hospitals serving a large number of Medicaid and uninsured individuals. Funding comes from both state and federal sources.
To ensure the appropriateness of DSH payments, hospitals are required to submit an independent certified audit and an annual report to the Secretary, detailing DSH payments made and providing any other information needed.
