By Sean Nicholson
This examine reports the rationales, legislative historical past, and monetary incentives of either forms of health center subsidies.
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Additional resources for Medicare Hospital Subsidies: Money in Search of a Purpose
The Medicare DSH program is now an exception to this rule. Hospitals with a large volume of low-income patients receive higher Medicare prices even though there is no evidence of a positive correlation between the volume of low-income patients and the cost of treating Medicare patients. By continuing Medicare DSH payments when the empirical evidence for the payments disappeared, Medicare is defining a 30 MEDICARE HOSPITAL SUBSIDIES broader role for itself than merely securing services for its beneficiaries at the lowest possible price.
A hospital’s IME payments would increase only when its Medicare admissions increased. This closed-ended structure would direct more money to major teaching hospitals without distorting the price of a resident and the price of a bed. If the government subsequently wants to make the payments more or less generous, it could apply the resident-to-bed ratio present at each hospital in 1982 to a new formula. This is essentially the arrangement instituted by the Balanced Budget Act of 1997, fourteen years after the introduction of the IME subsidy.
The structure of the DSH payment formula does, however, create some perverse incentives. By admitting an uninsured patient or a privately insured patient, a hospital’s total patient days increase (the denominator of the second term in equation (1), the DSH index decreases, and DSH payments decrease. This occurs because the DSH index, a proxy for the number of low-income patients treated by a hospital, is based on the volume of insured poor patients. A hospital receives no “credit” for admitting an uninsured patient because his treatment days do not appear in either numerator of equation (3).