Review of Medicaid Disproportionate Share Hospital Payment Distribution

Our review found that during Federal fiscal years 2003 through 2007, most of the seven selected States (Kansas, Louisiana, Missouri, New Jersey, New York, North Carolina, and Texas) reimbursed State-owned institutions for mental disease (IMD) and other State-owned hospitals the highest proportion of uncompensated care costs. The Medicaid disproportionate share hospital (DSH) program requires States to make special payments, known as DSH payments, to hospitals that serve unusually large numbers of low-income and/or uninsured patients. The Federal Government reimburses States for a percentage of their DSH payments.

We classified hospitals according to four categories: State-owned IMDs, other State-owned hospitals, local public hospitals, and private hospitals. In comparing DSH payments between hospital categories, we found that three of the seven States reimbursed State-owned IMDs the highest proportion of uncompensated care costs, three other States reimbursed other State-owned hospitals the highest proportion of uncompensated care costs, and one State reimbursed private hospitals the highest proportion of uncompensated care costs.

In analyzing the relationship between DSH payments and uncompensated care costs for all of the hospitals classified as DSH hospitals in the seven States, we found that, in the aggregate, State-owned IMDs received DSH payments averaging 92 percent of their uncompensated care costs, other State-owned hospitals received DSH payments averaging 95 percent of their uncompensated care costs, local public hospitals received DSH payments averaging 69 percent of their uncompensated care costs, and private hospitals received DSH payments averaging 38 percent of their uncompensated care costs.

We recommended that the Centers for Medicare & Medicaid Services (CMS) evaluate how DSH payments are distributed among hospital categories and consider requesting congressional legislation to ensure a more even distribution of payments based on uncompensated care costs. CMS concurred with our recommendation and noted that recent congressional action may affect DSH payments.'