States Made Larger DSH Payments to State Psychiatric Hospitals Than to Other Hospitals

Medicaid DSH payments in 1996 to state psychiatric hospitals in the six states were generally far larger than those to other types of hospitals. The Balanced Budget Act of 1997 should reduce the DSH payments to state psychiatric hospitals from 1996 levels in some of our study states, because it limits the proportion of a state’s DSH spending that may be paid to state psychiatric hospitals. Four of the six states in our study made DSH payments to state psychiatric hospitals that were larger on average than payments to any other type of hospital. In Michigan and Texas, payments to state psychiatric hospitals were on average less than to other state-owned hospitals. To determine whether the large DSH payments were a function of hospital size, we compared the average DSH payment per bed day for each type of hospital in the six study states. For five states, this ratio was greater for state psychiatric hospitals—and for other state-owned hospitals in one state—than for other types of hospitals, indicating that the difference in average DSH payments between groups does not result from differing hospital size. For example, Kansas state psychiatric hospitals received more than $150 in DSH for each bed day, while private hospitals received about $5, and average DSH payments per bed day to other state-owned hospitals and local public hospitals were about $19 and $11, respectively. States Paid State Psychiatric Hospitals and Other State-Owned Hospitals a Higher Proportion of Maximum Allowable DSH Payments

State psychiatric hospitals generally received DSH payments at or near the maximum allowed by Medicaid rules, while other hospitals often received payments that were well below their maximums. Local public hospitals and private hospitals generally received DSH payments at rates that were a smaller proportion of the maximum allowable. In some cases, the proportions were much smaller, as for local public hospitals in Kansas, which received only 8 percent of the maximum the state could have paid them. In addition, officials from North Carolina told us that local public hospitals returned the majority of their DSH payments to the state. Conclusions

In state fiscal year 1996, state psychiatric hospitals in the six states we reviewed received between 20 and 89 percent of total Medicaid DSH payments, even though state psychiatric hospitals represented a much smaller portion of the number of hospitals in the states and even though state psychiatric hospitals often had lower Medicaid utilization rates than other hospitals. In each of the six states, payments to state psychiatric hospitals covered more than 90 percent of the maximum allowable payment to state psychiatric hospitals. They pointed out that although DSH payments to IMDs enable the states to obtain federal matching funds to indirectly cover the costs of services provided to patients in IMDs that Medicaid cannot pay for directly, this is within the rules of the Medicaid program.
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed Medicaid disproportionate share hospital (DSH) program payments to state psychiatric institutions, focusing on: (1) how the amount of DSH payments to state psychiatric hospitals compares with DSH payments made to other types of hospitals; (2) how the proportion of Medicaid beneficiaries in state psychiatric hospitals compares with the proportion in other state hospitals; and (3) what proportion of the maximum allowable DSH payment states paid state psychiatric hospitals compared with the proportion of the maximum allowable paid to other types of hospitals.

What GAO Found

GAO noted that: (1) Medicaid DSH payments to state psychiatric hospitals were far larger on average than payments made to other types of local public and private hospitals in states GAO contacted, enabling the states to obtain federal matching funds to indirectly cover costs of services provided to patients in institutions for mental diseases (IMD) that Medicaid cannot pay for directly; (2) overall, DSH payments to state psychiatric hospitals averaged about $29 million per hospital compared with $1.75 million for private hospitals; (3) in four of the six states, the average DSH payments to state psychiatric hospitals were also much larger than those to other state-owned hospitals; (4) in the two other states, DSH payments to the other state-owned hospitals were larger than payments to state psychiatric hospitals; (5) in all but one state, the average DSH payment per bed day was also much higher for state psychiatric hospitals than for other types of hospitals, indicating that the large DSH payments were not simply a function of hospital size; (6) the Balanced Budget Act of 1997 limits the proportion of a state's DSH payment that can be paid to IMDs, which should reduce such payments to state psychiatric hospitals in at least some cases; (7) state psychiatric hospitals receiving DSH payments in five of the six states GAO reviewed often served smaller proportions of Medicaid patients than other state-owned, local public, and private hospitals; (8) for example, the 1996 average Medicaid utilization rate at Texas state psychiatric hospitals was about 3 percent, while the average rate at other types of hospitals was much higher, up to 37 percent at local public hospitals; (9) however, in one state, the state psychiatric hospital served a higher proportion of Medicaid patients than other hospitals receiving DSH payments; (10) the states in GAO's review allocated DSH funds to state psychiatric hospitals at or near the maximum allowed by Medicaid rules and made DSH payments to other hospitals that were far below their limits; (11) each of the six states made 1996 DSH payments to its state psychiatric hospitals at more than 90 percent of the maximum allowable amount, and four of the six states paid these hospitals the maximum allowed; (12) other types of hospitals often received much less; and (13) for example, local public hospitals in Kansas as well as private hospitals in Michigan and North Carolina all received, on average, less than 10 percent of their allowed maximum.