Medicare Disproportionate Share Hospitals

The Medicare disproportionate share hospital (DSH) adjustment generally  provides supplemental payments to hospitals that treat a disproportionate  number of low-income patients. Numerous Statutory Provisions Have Resulted in Increased Medicare Payments to Certain Hospitals

We identified 16 statutory provisions enacted between 1997 and 2012  that modified Medicare payment for inpatient services in a way that  benefitted a subset of hospitals. Provisions Modifying Classification Criteria for IPPS Supplemental Payments or Other Types of Special Treatment

We identified five statutory provisions that have affected the number of  hospitals that qualify for IPPS supplemental payments or other types of  special treatment. Most of these provisions modified the classification  criteria for payment adjustments, thereby expanding the number of  hospitals that qualify for higher payments. Provisions Creating and Modifying Qualifying Criteria for CAHs

In 1997, Congress established the Critical Access Hospital (CAH)  program, under which qualifying small rural hospitals are excluded from  the IPPS and receive Medicare payment based on the reasonable costs  of providing services. First, the provision changed the inpatient length of  stay requirement from a maximum of 4 days to an annual average of   4 days. The CAH program has grown to a total of 1,328 hospitals as of 2012. IPPS Payment Adjustments or Exclusions Affected Nearly All Hospitals

We found that, in 2012, payment adjustments to, or exclusions from, the  IPPS affected nearly all of the 4,783 hospitals in our review. Of these  hospitals—IPPS hospitals and CAHs—91 percent were subject to a  payment adjustment under the IPPS or were excluded from the IPPS  entirely. Specifically,
3,039 hospitals, or over 63 percent, qualified for at least one of the  following four types of payment adjustments under the IPPS: a DSH  adjustment, an IME adjustment, a wage index adjustment, or a rural  provider type adjustment for an RRC, SCH, or MDH designation;
1,328 hospitals, or about 28 percent, qualified as CAHs, excluding  them from the IPPS; and
416 hospitals, or about 9 percent, received IPPS payments that were  unadjusted for the modifications included in our review. Two percent of  IPPS hospitals qualified for four forms of adjustments, but no state had  more than 10 hospitals qualifying for four forms of increased payment. Concluding Observations

The IPPS streamlines how Medicare pays hospitals and gives hospitals  an incentive to economize by paying a fixed amount, set in advance. Over  time, however, numerous statutory provisions have been enacted that  provide, grandfather, or extend additional payments to IPPS hospitals or  exclude a substantial number of hospitals from the IPPS altogether. In fact, over 90 percent of hospitals were  subject to either IPPS payment adjustments or exemptions in 2012. Taken  together, these findings and recommendations suggest that, 30 years  after the IPPS was implemented, the way Medicare currently pays  hospitals may no longer ensure that the goals of the payment system— cost control, efficiency, and access—are being met. Agency Comments

HHS reviewed a draft of this report and did not have any general  comments. The agency provided technical comments, which we  incorporated where appropriate. We will send copies of this report to the Secretary  of Health and Human Services.
Why GAO Did This Study

To help control the growth of hospital spending, give hospitals an incentive to provide care efficiently, and ensure beneficiary access, Congress created the IPPS in 1983. Yet, Congress can enhance Medicare payments to certain hospitals by changing the qualifying criteria for IPPS payment categories, creating and extending exceptions to IPPS rules, or by exempting certain types of hospitals from the IPPS. The Institute of Medicine and the Medicare Payment Advisory Commission have stated that such practices undermine the integrity of the IPPS.
GAO was asked to review legislation that altered payments to certain hospitals. In this report, GAO (1) identified provisions of law that enhanced Medicare payments for only a subset of hospitals and (2) examined the extent to which hospitals qualified for adjustments to the IPPS or exemptions from the IPPS in 2012.
To conduct this work, GAO reviewed provisions enacted from 1997 to 2012 to identify those that adjusted payments to a subset of IPPS hospitals or exempted hospitals from the IPPS. GAO analyzed data to learn the number, location, and size of hospitals affected by these provisions and budgetary estimates for the first year of implementation, where available. GAO also analyzed 2012 data on 4,783 general hospitals to determine the number and types of adjustments they received, the extent to which they qualified for multiple adjustments, and the number exempted from the IPPS.
The Department of Health and Human Services reviewed a draft of this report, and provided technical comments, which we incorporated as appropriate.

What GAO Found

Over time, Congress has modified how Medicare reimburses certain hospitals under the inpatient prospective payment system (IPPS), which pays hospitals a flat fee per stay, set in advance, with different amounts for each type of condition. GAO identified numerous statutory provisions that individually increased Medicare payments to a subset of hospitals.
Seven provisions enabled hospitals to be paid under a different geographic wage index, which is used to address variation in labor costs.
Five provisions modified the classification criteria allowing IPPS hospitals to qualify for supplemental payments through the Medicare disproportionate share hospital (DSH) program or other types of special treatment.
Three provisions created and modified criteria for classifying small rural providers as Critical Access Hospitals (CAH), which are exempt from IPPS and instead are paid under an alternative methodology.
In general, while such provisions were designed to affect only a subset of hospitals, nearly all of the 4,783 hospitals in GAO's review qualified for an adjustment or exemption from the IPPS in 2012. About 91 percent were subject to an IPPS payment adjustment or were excluded from the IPPS entirely. Most hospitals, over 63 percent, qualified for at least one of four categories of increased payment, with DSH payments being the most common. Under the CAH program, 28 percent of hospitals were exempt from the IPPS. The remaining hospitals, 9 percent, received IPPS payments that were unadjusted for the modifications included in GAO's review. Moreover, many IPPS hospitals qualified for multiple categories of payment adjustments. These findings suggest that the way Medicare currently pays hospitals may no longer ensure that the goals of the IPPS--cost control, efficiency, and access--are being met.