“Hospital Uncompensated Care Issues”

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 Teresa Coughlin

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 Teresa Coughlin

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 Teresa Coughlin

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 Teresa Coughlin

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 Teresa Coughlin

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 Teresa Coughlin

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 Teresa Coughlin

9. Strategies To Help Prevent UC Costs • Promote insurance initiatives—Medicaid, SCHIP, HIFA waiver, ESI • Encourage use of primary care • expand network of community health centers (RHCs, FQHCs) Teresa Coughlin

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 Teresa Coughlin

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 Teresa Coughlin