Oklahoma Health Care Authority
Presenter:
Stephen Weiss
Sr. Policy Advisor
January 26, 2007
Disproportionate Share
Hospital Program
DSH
Not DISH
Revised DSH Presentation
• Presentation has been revised to
incorporate 2007 State Plan Amendment
• Also includes new text to addresses
comments received after initial
presentations were made during the fall of
2006. The presentations were held as
follows:
• November 7, Oklahoma City
• November 27th, Tulsa
• December 5th, Lawton
In Summary
• DSH established in 1981.
• First Concern: Address the needs of
hospitals which serve a high number of
Medicaid patients and low-income, often
uninsured, patients.
• The second concern was that there was
the potential for a growing gap in 1981
between what Medicaid paid hospitals
and what the cost of care was at the
hospitals.
Background
• OBRA ’81 (Pub. L. No. 97-35) gave states
flexibility to develop Medicaid reimbursement
systems that differed from Medicare.
• With this flexibility came a concern that states
would cut Medicaid payments, thereby
creating difficulties for hospitals serving large
numbers of Medicaid and uninsured patients.
• To minimize the potential negative impact on
these hospitals, OBRA ‘81 included a
requirement that states make “additional”
Medicaid payments to hospitals that serve a
disproportionate number of low-income
patients with special needs.
Background
• At first the states ignored the law because
it was broad and vague.
• In 1985, the HCFA (now CMS) ruled that
states could use hospital taxes and
donations as state share for the DSH
program. The state share is the FMAP.
• West Virginia was the first state to enact
such a provision in 1985.
• OBRA1986 Congress clarified that HCFA
had no authority to limit in any way the
amount of payment adjustments made to
DSH hospitals (PL 99-509).
Background
• OBRA 1987 established a federal definition
for DSH hospitals and required states to
make payments to these facilities.
• Definition included hospitals with
(a)Medicaid utilization rate of one standard
deviation or more above the mean
Medicaid utilization rate in the state or
(b)low-income utilization rate of 25 percent or
more.
• OBRA 1987 also gave states flexibility to
designate DSH hospitals and set payment
levels.
Why DSH?
• Easy Money!
• Originally no limits on the amount of DSH a
state could obtain.
• No one was held accountable for their
expenditures.
• If a state could prove through a formula
how much uncompensated care a
hospital provided in a certain time period
then the hospital could receive a DSH
payment.
The Results…
National DSH Allocations
Millions
$17,000 $18,000
$18,000
$16,000
$14,000
$12,000
$10,000
$8,000
$6,000
$4,000
$2,000
$-
$600
~1988
$1,200
1990
1992
2006
Oklahoma Tried to DSH before Reforms
limited the program…
• In 1992 the Oklahoma voters rejected a state question
on a provider tax.
• 1993 An Oklahoma Medicaid Reform Task Force
recommended adoption of four funding pools based
on a formula targeting charity care and incorporating
the federal laws related to low income utilization.
• 1993 SB 576 (Section 19) required a DSH formula
weighted against the University of Oklahoma’s
Medical Center.
• Because Oklahoma received less than $25 million for
DSH, had to weigh the funding toward the University of
Oklahoma by law and the availability of matching
funds were limited, the University Medical Center
received over 80% of the available DSH funds
annually.
Congress Reins in DSH
• OBRA 1987 provided that hospitals could receive DSH
only if they met the following criteria:
− Have at least 2 obstetricians who have staff
privileges at the hospital and who have agreed to
provide obstetric services to individuals who are
entitled to medical assistance for such services;
− or hospitals which serve individuals under 18 years
of age;
− For hospitals which did not offer nonemergency
obstetric services to the general population and
were in business as of December 22, 1987.
− In the case of a hospital located in a rural area the
term “obstetrician” includes any physician with staff
privileges at the hospital who performs
nonemergency obstetric procedures.
Reining in DSH by Law
• 1991 - The Medicaid Voluntary Contribution
and Provider-Specific Tax Amendments
(P.L. 101-234), established strict guidelines
for provider taxes and donations.
• DSH payments were capped at roughly
their 1992 levels and the law limited
national DSH payments to 12 percent of
total Medicaid costs.
• Congress introduced the concept of High
and Low DSH states using the 12 percent
criteria for each state.
Reining in DSH by Law
• 1993 - OBRA (P.L. 103-66) capped total DSH
payments to a single hospital; became known
as the “hospital-specific cap” or DSH Upper
Payment Limit (UPL).
• Also prohibited designation of a hospital as a
DSH hospital unless hospital had a Medicaid
inpatient utilization rate of at least 1%.
• 1997 - BBA (P.L. 105-33) established state
specific DSH allotments for each year through
2002.
• Limited how much DSH money IMD can
receive based on a federal formula using the
1995 as base year.
Reining in DSH by Law
• 2000 - BIPA (P.L. 106-554) postponed the
state specific DSH cuts for 2001 and 2002.
• BIPA added a new Special Rule for
Extremely Low DSH States. States with 1999
DSH expenditures that were between 0%
and 1% of the states' 1999 total medical
assistance expenditures were considered
to be ``low-DSH States.''
• Oklahoma designated a low DSH state.
• 2003 MMA (P.L. 108-173) reversed the BIPA
declines. For 2004, ceilings for high DSH
states were increased by 16% for one year.
Reining in DSH by Law
• MMA changed the definition of Low-DSH
State by expanding the range of DSH
expenditures to medical assistance
expenditures to 0% to 3% based on 2000
expenditure reports.
• Low DSH states received 16% increases in
their ceilings each year from 2004 through
2008, and then a CPI calculation for each
year thereafter.
• Finally, the MMA established very strict and
expanded DSH reporting and auditing
requirements which states will have to
comply with once the federal rules are
issued.
“The race for quality has no
finish lineso technically, it's more like a
death march.”
Unintended Consequences…
• The unintended consequence of all these
reforms was to:
a. lock states into certain funding
situations that are in some respects
unfair, and
b. Penalize states that did not exploit the
DSH program prior to the enactment of
the laws which were intended to stop
the perceived abuses of the program.
FY-2005 Actual MAP
from CMS 64
FY 2005 DSH
Allotment
DSH Expenditures as a
% of Medicaid
Expenditures
Louisiana
$5,439,333,030
$1,030,349,099
18.94%
New Hampshire
$1,245,160,455
$301,600,000
15.93%
New Jersey
$7,562,625,095
$1,212,722,000
15.50%
South Carolina
$4,136,556,514
$441,377,593
10.67%
Alabama
$3,837,492,664
$408,923,338
10.66%
Missouri
$6,647,293,717
$729,737,694
10.04%
$17,264,066,130
$1,479,728,931
8.28%
Nevada
$1,184,019,166
$77,931,664
8.26%
Connecticut
$4,027,600,290
$376,768,000
6.85%
$42,917,838,329
$3,025,918,000
6.84%
Utah
$1,341,242,046
$16,410,367
1.22%
Oklahoma
$2,790,918,244
$31,137,851
1.12%
Minnesota
$5,020,416,339
$90,141,744
1.11%
Arkansas
$2,873,057,622
$34,824,642
1.09%
Wisconsin
$4,780,891,908
$97,814,931
0.89%
New Mexico
$2,381,382,402
$16,543,817
0.67%
Delaware
$868,922,575
$10,843,859
0.41%
North Dakota
$513,843,792
$8,540,713
0.36%
$2,393,755,159
$37,394,933
0.28%
$619,515,439
$10,093,704
0.12%
State
Top Ten
Texas
New York
Bottom Ten
Iowa
South Dakota
Oklahoma After the MMA
Oklahoma Total DSH Ceilings
Based on 16% Increases from the 2003 MMA
For 2005 through 2008 est.
Year
Total Ceiling
2005
31,137,851
2006
2007
2008 est.
37,327,273
43,153,483
50,242,375
Oklahoma Response…
• Initial response in 2004 and 2005 from the
increases in the MMA was to provide added
funds to OU Medical Center.
• In 2006 the agency decided that the
formulas needed to be changed to add
more hospitals to the mix.
• An initial allocation was made in 2006 but a
balance was left to distribute under a new
formula if one could be created.
Initial DSH Allocation for 2006
Amounts
2006 DSH Allocation
IMD Set Aside
OU
Private & Community Hospitals
$37,327,273
$3,273,247
$18,324,454
$1,741,738
Total Initial Allocation
$23,339,439
Balance to Allocate
$13,987,834
Changes to the Plan
 A new section of the state plan was added in 2006 to
allocate the $13.9 million.
 First, there was a commitment that since we had more
money there would be no losers from any changes made.
 In 2005 OU Medical Center received $25.5 million so the
first section of the State Plan Amendment (SPA) allocated
$7.2 million to OU Medical Center.
 Second, $840,486 was allocated to the J.D. McCarty Center
for Handicapped Children located in Norman.
 Finally, $5.9 million was allocated to as many hospitals as
we could qualify under federal law for DSH.
Final Oklahoma DSH Allocation for 2006
Provider Description
Amounts
IMD Set Aside
$3,273,247
OU
Private & Community Hospitals
J.D. McCarty Center
Total Allocation
$25,546,749
$7,666,791
$840,486
$37,327,273
Changes to the Plan
 For 2007:
 OU Medical Center will receive the same amount as it did
in 2006 plus an inflation adjustment based on the first half
of the calendar year.
 The remaining hospitals will then share in the balance of
funds left after the OU allocation and the IMD allocation are
subtracted
Proposed DSH Allocation for 2007
Oklahoma DSH for 2007
Amounts
IMD Set Aside
$3,273,247
OU (Inflation adjusted from 2006)
$26,517,525
Private & Community Hospitals
$13,362,712
2007 DSH Allocation
$43,153,483
Changes to the Plan for 2006 and 2007
for Private and Community Hospitals
 The formula and methodology adopted by
Oklahoma attempts to capture the essence of
the main concerns expressed by Congress when
the DSH program was created:
- target hospitals that serve a disproportionate
number of Medicaid and low income, often
uninsured, patients.
 Congress gave states broad discretion in defining
and identifying these hospitals - which are often
referred to as “safety-net” hospitals.
 A 2002 RAND reported noted that “An important
distinction of safety net hospitals is that they
provide care to vulnerable populations.
Unfortunately, there is no general agreement on
which groups should be considered vulnerable.”
Changes to the Plan
 The 2002 RAND report:
 examined the distribution of both Medicare and Medicaid
DSH funds across hospitals,
 assessed alternative criteria that could be used to identify
safety net hospitals,
 developed measures of hospital financial vulnerability to
identify those safety hospitals that are under most
financial pressure, and
 explored the extent to which alternative allocation
policies to the current Medicare and Medicaid DSH
payment mechanisms would improve the distribution of
funds to those safety net hospitals that are most
vulnerable.
 the report found that a formula involving Medicaid
inpatient hospital days relative to total inpatient hospital
days may be the most effective in achieving the desired
goals of the DSH program.
Changes to the Plan
 One of the overriding concerns in adopting the
methodology for the purpose of distributing DSH
funds is to insure that the data used in the formula
can be audited.
 The second concern is that the definition of a
safety net hospital be broad and inclusive to
capture as many hospitals as possible within the
parameters of the federal law.
 The final concern is that the funds be distributed as
fairly as possible with a minimum amount of
gamesmanship.
Changes to the Plan
 The methodology first groups like size hospitals with
each other based on licensed bed size.
 The larger hospitals tend to offer more acute care,
high cost services such as trauma care and neonatal
intensive care and attract patients from throughout
the state to their facilities in search of those high level
and more intensive services.
 The methodology then weighs the funding for Private
& Community Hospitals to hospitals that provide the
most amount of the Medicaid inpatient days in the
state.
 The final portion of the methodology weighs indigent
care costs among the different hospitals within each
group. This portion of the methodology recognizes
that hospitals incur such costs and allows each like
sized hospital to be compared to other like sized
hospitals.
Changes to the Plan
 Group 1 includes hospitals with 300 or more
licensed beds.
 Group 2 includes hospitals with more than
100 but less than 300 licensed beds.
 Group 3 includes hospitals with less than
100 licensed beds.
Allocation to Groups for 2006
Licensed Beds
Medicaid Inpatient
Days
Days as %
Total
Group Specific
Allocation
4,071
171,349
60.03%
$3,555,032
2,755
84,617
29.64%
$1,777,516
Group Totals = 40
1,953
29,470
10.32%
$592,505
Totals
8,779
285,436
2006 Groupings
Group = Beds > 300
Group Totals = 8
Group = Beds > 100 < 300
Group Totals = 16
Group = Beds < 100
$5,925,053
Proposed Allocation to Groups for 2007
Licensed
Beds
Medicaid
Inpatient Days
Days as %
Total
Group Specific
Allocation
4,465
198,808
57.99%
7,748,998
2,953
103,819
30.28%
4,046,567
Group Totals = 40
1,878
40,207
11.73%
1,567,147
Totals
9,296
342,833
2007 Groupings
Group = Beds > 300
Group Totals = 9
Group = Beds > 100 < 300
Group Totals = 17
Group = Beds < 100
$13,362,712
Hospital Allocations
 Hospitals in each group receive funds based on their
relationship to the total amount of Indigent Care Costs
provided by the group. Indigent Care Costs are reported
to the Oklahoma Health Care Authority by each hospital
using the annual OHCA DSH Survey.
Indigent Care Costs are calculated based on the following
hospital specific formula:
Indigent Care Costs =
(Medicaid Gross Charges + Bad Debt + Charity Care) x
(The hospital specific cost to charge ratio)
Upper Payment Limits
• Once allocations are made to each hospital they are
compared to the hospital’s DSH specific upper payment
limit and then adjusted down, if necessary, so as to not
exceed the Hospital Specific DSH Limit.
Hospital Specific DSH Limits =
Hospital Specific CCR x (Total Medicaid Gross Charges + Total
Charity Care Charges) – (All Medicaid Payments)
− For 2007 Hospital Specific CCR = one used for DRG & published on
OHCA website
− Gross Charges = Actual Billed Amount
− Charity Care Charges = Form Question 3.4 adjusted for inflation based on
the most current CMS Market Basket data available
− All Medicaid payments = Actual Medicaid Payments
Hospital Responsibilities
• Each hospital will be responsible for maintaining its own
supporting documents and records related to information
reported to the OHCA on the annual Disproportionate Share
Hospital Payment program.
• Hospitals must use Medicare cost reports filed with CMS
wherever specified and wherever information corresponds to
the DSH Survey.
• Pursuant to Section 1923(j) of the Social Security Act, hospitals
will be subject to annual audits where information provided on
the DSH Survey is matched against hospital documents and
records.
• Hospitals found to be out of compliance as a result of the audits
will be responsible for reimbursing the state.
• Any hospital required to pay back any or all portions of DSH
funds allocated pursuant to this Section will have the right to an
appeal pursuant to the appeal provisions included in this State
Plan.
SEC. 1923. [42 U.S.C. 1396r-4] (a) IMPLEMENTATION OF REQUIREMENT.—
ADJUSTMENT IN PAYMENT FOR INPATIENT HOSPITAL SERVICES
FURNISHED BY DISPROPORTIONATE SHARE HOSPITALS
http://www.ssa.gov/OP_Home/ssact/title19/1923.htm
• (j) ANNUAL REPORTS AND OTHER REQUIREMENTS REGARDING
PAYMENT ADJUSTMENTS.—With respect to fiscal year 2004 and each
fiscal year thereafter, the Secretary shall require a State, as a condition of
receiving a payment under section 1903(a)(1) with respect to a payment
adjustment made under this section, to do the following:
• (1) REPORT.—The State shall submit an annual report that includes the
following
• (A) An identification of each disproportionate share hospital that received a
payment adjustment under this section for the preceding fiscal year and the
amount of the payment adjustment made to such hospital for the preceding
fiscal year.
• (B) Such other information as the Secretary determines necessary to ensure the
appropriateness of the payment adjustments made under this section for the
preceding fiscal year.
SEC. 1923. [42 U.S.C. 1396r-4] (a) IMPLEMENTATION OF REQUIREMENT.—
ADJUSTMENT IN PAYMENT FOR INPATIENT HOSPITAL SERVICES
FURNISHED BY DISPROPORTIONATE SHARE HOSPITALS
http://www.ssa.gov/OP_Home/ssact/title19/1923.htm
• (2) INDEPENDENT CERTIFIED AUDIT—The State shall
annually submit to the Secretary an independent certified
audit that verifies each of the following:
• (A) The extent to which hospitals in the State have reduced
their uncompensated care costs to reflect the total amount of
claimed expenditures made under this section.
• (B) Payments under this section to hospitals that comply
with the requirements of subsection (g).
SEC. 1923. [42 U.S.C. 1396r-4] (a) IMPLEMENTATION OF REQUIREMENT.—
ADJUSTMENT IN PAYMENT FOR INPATIENT HOSPITAL SERVICES
FURNISHED BY DISPROPORTIONATE SHARE HOSPITALS
http://www.ssa.gov/OP_Home/ssact/title19/1923.htm
• (C) Only the uncompensated care costs of providing inpatient hospital
and outpatient hospital services to individuals described in paragraph
(1)(A) of such subsection are included in the calculation of the hospitalspecific limits under such subsection.
• (D) The State included all payments under this title, including
supplemental payments, in the calculation of such hospital-specific
limits.
• (E) The State has separately documented and retained a record of all of
its costs under this title, claimed expenditures under this title, uninsured
costs in determining payment adjustments under this section, and any
payments made on behalf of the uninsured from payment adjustments
under this section.
Code of Federal Regulations
Title 42 Public Health
PART 433—STATE FISCAL ADMINISTRATION
• §433.32 Fiscal policies and accountability.
• A State plan must provide that the Medicaid agency and, where
applicable, local agencies administering the plan will—
• (a) Maintain an accounting system and supporting fiscal records to
assure that claims for Federal funds are in accord with applicable
Federal requirements;
• (b) Retain records for 3 years from date of submission of a final
expenditure report;
• (c) Retain records beyond the 3-year period if audit findings have
not been resolved; and
• (d) Retain records for nonexpendable property acquired under a
Federal grant for 3 years from the date of final disposition of that
property.
Proposed DSH Audit Regulations
Federal Register / Vol. 70, No. 165 / Friday, August 26,
2005 / Proposed Rules
• Medicare Provider Number.
• Medicaid Provider Number.
• Type of Hospital.
• Type of Hospital Ownership.
• Medicaid Inpatient Utilization
Rate.
• Low Income Utilization Rate.
• DSH Payments.
• Regular Medicaid Rate
Payments.
• Medicaid Managed Care
Organization Payments.
• Supplemental/Enhanced
Medicaid Payments.
• Indigent Care Revenue.
• Transfers.
• Total Cost of Care.
• Uncompensated Care Costs.
Uncompensated care costs do
not include bad debt or payer
discounts.
• Medicaid Eligible and
Uninsured Individuals.
The State would indicate the
total annual unduplicated
number of Medicaid eligible
individuals receiving inpatient
hospital and outpatient
hospital services and
the total annual unduplicated
number of individuals with no
source of third party coverage
for the inpatient hospital and
outpatient hospital services
they receive.
Department of Health and Human Services
OFFICE OF INSPECTOR GENERAL
• Audit Of Selected States’ Medicaid
Disproportionate Share Hospital Programs;
March 2006(A-06-03-00031)
• SUMMARY OF FINDINGS: Nine of the ten States
reviewed did not comply with the hospitalspecific DSH limits imposed by section 1923(g)
of the Act. As a result, DSH payments exceeded
the hospital-specific limits by approximately $1.6
billion ($902 million Federal share).
Department of Health and Human Services
OFFICE OF INSPECTOR GENERAL
• Four States (California, Illinois, Texas, and
Washington) did not later adjust the payments
using actual costs.
• Eight States included unallowable costs in their
calculations of hospital-specific limits. Unallowable
costs consisted of costs for institutions for mental
diseases and non-hospital services as well as
unallowable costs such as bad debts,
miscalculations, and other accounting errors.