This study identified options for development of an equitable Disproportionate Share (DSH) payment adjustment that accounts for hospital uncompensated care costs, and determined the financial impact of each of these proposals on rural hospitals. A hospital's eligibility to receive DSH payments is based on a set of complex formulas that historically have been biased against rural hospitals. Compared to their urban counterparts, rural hospitals had to achieve a higher threshold of low-income patients to qualify for DSH payments, and those that did qualify for this adjustment received a lower fixed percentage add-on to the base DRG payment amount.

The Medicare, Medicaid, and SCHIP Benefit Improvement and Protection Act of 2000 (BIPA) and the Medicare Prescription Drug, Improvement, and Modernization Act made substantial advances toward achieving equity in the DSH formula. However, research suggests that more fundamental changes in the DSH formula are necessary to ensure that the original purpose of the adjustment - preserving access to care for the poor - is achieved. Walsh Center staff reviewed the health services literature to identify alternative models or recommendations for revising the DSH payment to incorporate measures of uncompensated care, and used hospital financial statement data from nine states to simulate the impact of these changes. Results will be presented in the aggregate as well as by selected hospital characteristics that include size, state, teaching status, and ownership.

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Schoenman, J., Sutton, J. and Zhao, L. 2005. "Revisions to Medicare's Disproportionate Share Payment Policy to Incorporate Bad Debt and Charity Care." Final report.  Washington, DC: Office of Rural Health Policy.  (294K)