Blog, Reimbursement, The Hospital Finance Podcast®

What are disproportionate share hospitals? [PODCAST]

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The Hospital Finance Podcast

In this episode, we are joined by Jimmy Mendez, Senior Reimbursement Manager at BESLER, to discuss disproportionate share hospitals and how they affect the uncompensated care pool.       

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Highlights of this episode include:

  • Background on disproportionate share hospitals and how they affect the uncompensated care pool.
  • A look at two ways hospitals can qualify for additional DSH payments.
  • What variations in hospital size and status are used to calculate DSH payments?
  • Steps hospitals can take to improve their DSH payments.
  • And more…

Download our special report for more on the interdependence of DSH, S-10, and Bad Debts and how they determine whether a hospital will receive its appropriate share of uncompensated care reimbursement.


Mike Passanante: Hi, this is Mike Passanante and welcome back to the award-winning Hospital Finance Podcast®. One of the major issues that affects the uncompensated care pool is the idea of disproportionate share hospitals. And to explain exactly what those are for us today, I’m joined by Jimmy Mendez, who is a Senior Reimbursement Manager here at BESLER. Jimmy, welcome back to the show.

Jimmy: Thank you, Mike.

Mike: So we’re going to talk about disproportionate share hospitals. We’re going to talk about what they are and really how they affect the uncompensated care pool. But to get us started, Jimmy, why don’t you just give us the definition of what a disproportionate share hospital is?

Jimmy: Well, Mike, disproportionate share hospitals, or DSH hospitals, are defined as hospitals that treat a disproportionately large number of low-income patients as compared to their total patients. Disproportionate share hospitals may qualify for additional payments from Medicare to cover the added cost of lower-income patients who typically do not receive preventive care services and can present at hospitals with multiple medical conditions and complications. In most states, Medicaid also has a DSH payment and qualification. But let’s focus on the Medicare DSH issues today.

Mike: Absolutely. So why don’t you tell us how a hospital qualifies for the additional payments?

Jimmy: Well, there are two ways. One is referred to as the primary method, and the other is the alternate method. The primary method is the most common way hospitals qualify as DSH hospitals.

Mike: All right, let’s drill into that. Why don’t you describe the primary method for us?

Jimmy: Sure. This involves the disproportionate payment percentage, or DPP, which is the sum of the hospital’s supplemental security income percentage, known as the SSI percentage, and the hospital’s Medicaid percentage. The SSI percentage represents the percentage established by dividing inpatient days attributable to patients entitled to both Medicare Part A and SSI by the total Medicare days. The Medicaid percentage represents the percentage established by dividing Medicaid, non-Medicare days by total patient days. The DPP must be at or above 15% for the hospital to qualify for the additional payments.

Mike: And you mentioned that there’s a second method. Can you describe that one for us?

Jimmy: Yes. That’s the alternate method. This is less commonly used and only applies to urban area hospitals with at least 100 beds that can demonstrate that more than 30% of their total net inpatient care revenues come from state and local government sources for indigent care other than Medicare or Medicaid.

Mike: Jimmy, hospitals across the country vary in size and status. Are there any variations in the payments between the various hospital classifications?

Jimmy: Yes. Whether the hospital is urban or rural, and whether they have 100 or more beds or less than 100 beds, determines the formula utilized to calculate the payment. In general, whether the DPP is between 15% and 20.2% or greater than 20.2% determines the applicable formula. The result of this calculation establishes the DSH adjustment percentage. For urban hospitals with less than 100 beds, the DSH adjustment percentage is capped at 12%. The same cap applies to rural hospitals with less than 500 beds. Now, hospitals with rural referral center status are not subjected to the 12% cap.

Mike: How do the hospitals receive the DSH payments?

Jimmy: Hospitals are paid on an interim basis throughout their fiscal year via an add-on payment to their DRG payments on a claim-by-claim basis. The payments are reconciled after the close of the fiscal year when the hospitals file their Medicare cost reports inclusive of the data used to calculate the DPP and resulting DSH adjustment percentage. Please note, though, that the resulting DSH payment amounts are then applied to a 25% factor as a result of provisions of the Affordable Care Act. In other words, the DSH payment will be one-fourth what it would’ve been prior to the implementation of the Affordable Care Act.

Mike: Jimmy, what can hospitals do to improve their DSH payments?

Jimmy: Well, the most common way is for hospitals to improve their Medicaid percentage by increasing the numerator of the calculation. The numerator, or Medicaid days, is defined as patient days for those eligible for medical assistance under the state plan approved under Title 19 or Medicaid. Verifying your internal compilation of days against that of the states usually allows the hospitals to identify additional Medicaid-eligible days. In addition, hospitals quite often fail to capture Medicaid-eligible days from states outside of the one the hospital resides in. Another way that hospitals can improve on their Medicare-eligible days is to review all patients that are self-pay or qualified for charity care that came back from the state as not Medicaid-eligible. There is usually a high relationship between these patient types and Medicaid eligibility. These patient records should be reviewed and verified to ensure that the data submitted to the state was accurate and resubmitted if adjustments are found.

Mike: And if you are interested in a DSH review, that is certainly a service that BESLER provides. You can visit us at besler.com to read more about what we do there or reach out to us directly at update@besler.com. Jimmy, thanks again for joining us on The Hospital Finance Podcast today and explaining to us what disproportionate share hospitals are.

Jimmy: Thank you for having me, Mike.


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