1. “Hospital Uncompensated Care Issues” Teresa Coughlin, M.P.H. Senior Research Associate The Urban Institute

2. Teresa Coughlin Background and Purpose of Medicaid DSH Program n In 1981 Congress mandated Medicaid DSH payments n $15 billion spent on DSH payments in 2001 n Purpose: – maintain access for low-income – provide financial help to hospitals serving large numbers of low-income patients n Single biggest public program to help hospitals cover UC costs

3. Teresa Coughlin How Does a DSH Program Work? n Each state is different n States largely determine design – which hospitals get DSH – allocation among hospitals – DSH payment methodology – number of DSH programs n Federal DSH spending is capped – states have preset federal DSH allotments

4. Teresa Coughlin DSH Payments to Hospitals n Nationally, 80% go to acute care hospitals, with most going to county- owned or private hospitals n 20% to mental hospitals n Distribution varies by state

5. Teresa Coughlin Key Issues in DSH Program n 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 n Sometimes controversial issue within a state – among hospitals – between state and hospitals

6. Teresa Coughlin Steps That States Can Take To Make Best Use of DSH Funding n Ensure state is spending its federal allotment n Ensure “true” safety net providers receive enough DSH payments – change DSH eligibility or allocation formulas n Impose conditions on hospitals getting DSH – e.g. must provide certain amount of free care or primary care n Encourage hospital innovation – CO, IN, MI and TX use DSH to fund “insurance- like” programs for uninsured

7. Teresa Coughlin New Federal DSH Provisions New Provisions n In 2003 cutbacks in federal DSH spending – more than $1 billion; affect 35 states n In 2003 hospital-specific cap is expanded – states can pay public hospitals 150% of UC costs, rather than usual 100% n Implications – less money for UC – better targeting of DSH funds with 150% option

8. Teresa Coughlin Possible Federal Medicaid DSH Reforms n Make it more akin to Medicare DSH n 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

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

10. Teresa Coughlin Other Ways to Help Pay for Hospitals UC n Medicaid – increase general Medicaid reimbursement – Medicaid upper payment limit (UPL) strategies n Increase state/local hospital subsidies

11. Teresa Coughlin Major Differences Between Medicare DSH and Medicaid DSH n Size: Medicaid DSH 3 times larger than Medicare ($15 billion versus $5 billion) n Federal funding: Limited for Medicaid; no limits for Medicare n Formula: Medicaid no national formula; national for Medicare n State role: Large for Medicaid; virtually no state role in Medicare