The following article is the third in a series providing analysis of current trends and anticipated developments in the healthcare industry.
The recent history of the disproportionate share hospital (DSH) program, the recent election results and the current state of the economy, make major changes to the DHS program unlikely in 2009.
Background
The DSH program was established by Medicare legislation passed in 1981. The initial rationale for the program was to compensate hospitals that treated a large share of low-income patients for additional costs incurred as a result of serving the low-income population. It was feared that, absent additional funding, the shift from cost-based reimbursement to the Medicare Prospective Payment System (PPS) might make it difficult for these hospitals to survive. After a number of surveys showed that any such additional costs were not large enough to justify the program, a second justification developed over time. The current policy reason for the DSH program is that it helps preserve access to care for Medicare and low-income patients by providing financial assistance to the hospitals they use.
It was not, however, until the passage of the Consolidated Omnibus Budget Reconciliation Act (COBRA) in 1985 that an actual DSH adjustment was enacted for patients discharged after May 1, 1986. Over the past two decades, disproportionate share payments have grown into a significant source of funding for those hospitals that serve the nation's poorest citizens.
Most of these hospitals qualify for DSH payments by meeting the requirements of a formula called the disproportionate patient percentage (DPP). The DPP is equal to the sum of (i) the percentage of a hospital's Medicare inpatient days attributable to patients entitled to both Medicare Part A and Supplemental Security Income and (ii) the percentage of total patient days attributable to patients eligible for Medicaid but not Medicare Part A. If a particular hospital's DPP equals or exceeds a specified threshold amount, then that hospital qualifies for the Medicare DSH adjustment.
A second method of qualification is called the "alternate special exemption." This exemption is available to urban hospitals with 100 or more beds that can document that more than 30 percent of their total net inpatient care revenues come from state and local government sources for indigent care other than Medicare or Medicaid. These hospitals are known as "Pickle" hospitals.
In either case, DSH payments are paid to qualifying hospitals by their respective states as an add-on to their normal Medicaid grants. In 2006, the states made more than $17 billion in DSH payments to individual hospitals.
Politics and Outlook for 2009
In recent years, Republicans in Congress have been consistent in their efforts to find cost savings by containing the growth of or making cuts to the DSH program. These efforts have succeeded in establishing caps on the amount of DSH funds an individual hospital can receive as well as on the total amount of DSH payments that can be made within a state. On the other side of the aisle, Democrats have been persistent in their support of the DSH program and have been successful in thwarting attempts to effect significant reductions in the funding of the program.
Most recently, Congress passed HR6331, overriding a veto by President Bush, and extending through 2009 increased DSH payments to certain Low Disproportionate Share Hospital states. This legislation was passed with bipartisan support.
In the wake of the November elections there appears to be little chance that the current program will be cut back. It is, however, also unlikely that the DSH program will be expanded or have its funding significantly increased. Although Congress has shown a willingness to side-step the PAYGO rules to respond to the current economic crisis, it is doubtful that the Congress would add to the federal deficit to facilitate incremental healthcare reform.
The one development that could have a significant impact on the DSH program is major healthcare reform. During his campaign, President-Elect Obama consistently advocated fundamental changes to the U.S. healthcare system which would provide coverage and access to substantially all Americans. Obviously, such universal coverage might well reduce or obviate the need for DSH program payments to the states. Still, given the strain on federal finances caused by the recent "bailout" of the financial industry, it remains to be seen whether such major reform will be undertaken or could come quickly enough to affect the 2009 DSH program.
In summary, the outlook for the DSH program in 2009 seems reasonably certain absent dramatic action on the healthcare reform front . Most likely, the program will be continued with increases to funding being incremental and consistent with those in prior years. The one significant caveat to this prediction is the advent of fundamental, major reform to the U.S. healthcare system.
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