Supplemental payments that aim to stabilize safety-net hospitals are often misallocated, a new study shows.
Nearly a third of Medicaid disproportionate-share hospital payments in 2015—the latest data available—went to hospitals that provided less uncompensated care than the median level in their respective states, according to an analysis of DSH payment data from 2011 to 2015 published Monday in the peer-reviewed Heath Affairs journal. Uncompensated care is the sum of patients’ outstanding bills known as bad debt and charity care.
More than 3% of the $14.5 billion distributed in Medicaid DSH payments in 2015 went to hospitals that did not meet any of the criteria related to uncompensated care, meeting the median state-specific threshold for Medicaid utilization and/or reaching a low-income utilization rate of at least 25%, according to the study. The program should be tweaked, such as by boosting transparency or consolidating the Medicare and Medicaid DSH programs to ensure that hospitals with the greatest need are receiving the supplemental payments, researchers said.
DSH payments represent one element of a complex state and federal financing system that aims to bolster hospitals that care for the most vulnerable—but research has shown can fail. For instance, state agencies can make DSH payments to government-owned hospitals and divert those payments back to the state’s Medicaid agency via intergovernmental transfers.
Part of the problem is these financing mechanisms are often hidden in a “black box,” said Dr. Paula Chatterjee, an assistant professor of medicine at the University of Pennsylvania and lead author of the study.
“Step one here is to make data on DSH more transparent,” she said. “The states have a lot of flexibility in implementing the programs, but we don’t know much about the state-level decision-making process.”
Another option would be to combine the separate DSH programs for Medicare and Medicaid patients or move the payment system away from utilization-based criteria, Chatterjee said. But the latter would require congressional approval.
Supplemental payments like DSH that try to distribute funding at the hospital level tend to have a lot of “slippage,” where money is distributed to facilities that are not focused on the patient populations originally intended, said Katherine Baicker, dean of the University of Chicago Harris School of Public Policy and a healthcare economics professor, who was not affiliated with the study.
“It is very hard to target spending through programs like DSH to focus on increasing resources for the neediest patients and their providers,” she said.
Academic medical centers accounted for a big portion of the 31.6% of hospitals that received Medicaid DSH payments in 2015 but did not meet the median threshold for uncompensated care in their respective states. Many of those teaching facilities had positive operating margins and could qualify for other payments like graduate medical education funding, Chatterjee said.
“Reallocating funding from this group might be a better opportunity than diverting payments from rural hospitals that tend to rely on these funds more,” she said.
Using uncompensated care to determine DSH funding may be inherently flawed, said Katherine Hempstead, a senior policy adviser at the Robert Wood Johnson Foundation, a nonprofit research center. Two hospitals could have the same patient volume, but if one has higher prices, it can seem like they are providing more uncompensated care, she said.
“There are a lot of ways a hospital could ‘game’ that to make it look like they are doing more than they are actually doing,” Hempstead said.
If safety-net hospitals aren’t getting their fair share of supplemental payments, they may be forced to join a larger system, cut services or close.
Last month, Marietta, Georgia-based Wellstar Health System closed Atlanta Medical Center, a 460-bed hospital that shouldered a disproportionate load of the area’s uncompensated care. The hospital could not sustain waning revenue and surging labor and supply costs, Wellstar executives said.
“Appropriately targeting DSH funding is related to the viability of these hospitals,” Chatterjee said.
DSH allotments to states are largely based on the original calculations from 1992, and likely do not reflect states’ current needs or contexts, researchers said. The statutes haven’t been meaningfully updated for more than 20 years, said Edwin Park, a research professor at Georgetown University.
“This study certainly demonstrates the arbitrary nature of caps based on past spending, without updates,” he said.