Changes to Medicare DSH adjustment


Part of the cost-savings in the House reconciliation bill would come from reducing the amount of disproportionate share hospital (“DSH”) payments Medicare makes to hospitals that serve a disproportionate number of low income people.

As enacted by the Senate, the health reform bill replaces the existing DSH adjustment (which had been calculated on a formula based on the ratio of Medicare Part A patient days for beneficiaries with SSI to those for all beneficiaries and on the ratio of Medicaid inpatient days to all inpatient days), to a new formula designed to decrease DSH payments over time as the number of uninsured people and those for whom hospitals must provide uncompensated care goes down.

The new formula would pay each disproportionate share hospital —

  • 25% of the amount the hospital would have gotten under the old formula,  plus
  • an additional sum calculated by multiplying the remaining DSH money (i.e., 75% of what aggregate DSH spending would be), times a factor based on the rate of change in the national population of those under 65 without health insurance, times a hospital-specific factor based on the hospital’s uncompensated care, expressed as a percentage of aggregate uncompensated care provided by all hospitals.

The House reconciliation bill would move the starting date for this change back from 2015 to 2014 and make the formula for the additional payments slightly richer for the first year but lower than would have been under the Senate bill for subsequent years.

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