Indirect Medical Education and Disproportionate Share Adjustments to Medicare Inpatient Payment Rates

Abstract

The indirect medical education (IME) and disproportionate share hospital (DSH) adjustments to Medicare's prospective payment rates for inpatient services are generally intended to compensate hospitals for patient care costs related to teaching activities and care of low income populations. These adjustments were originally established based on the statistical relationships between IME and DSH and hospital costs. Due to a variety of policy considerations, the legislated levels of these adjustments may have deviated over time from these "empirically justified levels," or simply, "empirical levels." In this paper, we estimate the empirical levels of IME and DSH using 2006 hospital data and 2009 Medicare final payment rules. Our analyses suggest that the empirical level for IME would be much smaller than under current lawabout one-third to one-half. Our analyses also support the DSH adjustment prescribed by the Affordable Care Act of 2010 (ACA)-about one-quarter of the pre-ACA level. For IME, the estimates imply an increase in costs of 1.88% for each 10% increase in teaching intensity. For DSH, the estimates imply that costs would rise by 0.52% for each 10% increase in the low-income patient share for large urban hospitals.

Hospital Payer and Racial/Ethnic Mix at Private Academic Medical Centers in Boston and New York City

“…33 Federal regulators have subsequently allowed hospitals to expand the definition of community benefits to include research and health professions training programs—even when such activities are adequately compensated by Medicare and grant payments. 34 A handful of states specify minimum criteria—often tied to the level of care provided to uninsured and underinsured individuals—that hospitals must fulfil to retain property tax exemptions. 35 The low levels of care for Medicaid and uninsured patients reported by some AMCs in NYC (10% or less at one-third of them in 2014; data not shown) raises questions about the appropriateness of their claim to be providing substantial community benefits.…”

Variation in Payment Rates under Medicare's Inpatient Prospective Payment System

“…For instance, each hospital's DGME payment is based substantially on the costs it reported in FYs 1984–1985, adjusted for inflation (Eden, Berwick, and Wilensky ). Likewise, the rules for calculating the DSH adjustment allow for a number of discontinuities, such as a ceiling of 0.12 for urban hospitals with up to 100 beds, but no ceiling for urban hospitals with 101 or more beds (Nguyen and Sheingold ).…”

“…). Separately, research by the MedPAC and others has raised concerns that payment adjustments, while in principle legitimate, are too large in the aggregate and poorly correlated with hospitals’ resource needs (Nguyen and Sheingold ; Chandra, Khullar, and Wilensky ; Grover, Slavin, and Willson ). MedPAC found that “at most, 25 percent of the DSH payments [were] empirically justified by the higher Medicare costs at hospitals treating low‐income patients” (MedPAC ) and that the $6.5 billion spent annually on IGME exceeds by $3.5 billion, the true added costs of teaching inpatient care (MedPAC ).…”

Predictors of Payer Mix and Financial Performance Among Safety Net Hospitals Prior to the Affordable Care Act

“…One recent study indicated that current indirect medical education levels are 2 to 3 times as large as what would be an "empirically justified" level. 24,25 Given that the ACA does not include any indirect medical education cuts, university ownership may continue to provide some safety net hospital systems with a financial buffer as Medicaid DSH funds decline substantially over the next 5 years.…”