Computation of DSH Adjustment

Compute the amount of the DSH adjustment by multiplying the Federal portion of the hospital's DRG revenues by the appropriate DSH adjustment factor.

EXAMPLE: Hospital A's DSH payment adjustment factor is 5.5 percent (or .0550). The Federal portion of its DRG revenues (including appropriate outlier payments, but excluding any payments for indirect medical education costs) equals $100,000.

Federal DRG revenues x DSH adjustment factor = DSH adjustment amount $100,000 x .055 = $5,500

 DSH Exception

The law contains a provision whereby a hospital can qualify for an operating cost DSH adjustment of:

• 15 percent for discharges prior to October 1, 1988; 

• 25 percent for discharges between October 1, 1988, and April 1, 1990;

• 30 percent for discharges from April 1, 1990, through September 31, 1991; 

• 35 percent for discharges on or after October 1, 1991, if:

° It is located in an urban area and has 100 or more beds; and 

° It demonstrates that, during its cost reporting period, more than 30 percent of its total inpatient care revenues were derived from State and local government payments for indigent care furnished to patients not covered by Medicare or Medicaid.

It is incumbent upon the hospital to demonstrate that more than 30 percent of its total inpatient care revenues are from State and local government sources and that they are specifically earmarked for the care of indigents (that is, none of the money may be used for any purpose other than indigent care). The following are the types of care that are not included as indigent care:

• Free care furnished to satisfy a hospitals Hill-Burton obligation.

• Free care or care a hospital furnished at reduced rates to its employees or by a government hospital to any category of public employee.

• Funds furnished to a hospital to cover general operating deficits. 

• The adjustment is not automatic from year to year but must be applied for on an annual basis

Documentation to support the application includes the hospital's complete audited financial statements and their accompanying notes. The hospital must provide detailed schedules related to State and local revenue appropriations and outline their purpose.

Unless the appropriations are specifically earmarked for indigent patient care, the A/B MAC (A) shall assume that a portion of the funds was intended to cover the costs of other uncompensated care, such as bad debts for non-indigent patients, free care to employees, etc., as well as to cover general operating deficits. The A/B MAC (A) shall calculate the percentage of charity care included in all uncompensated care and apply the percentage to the appropriate funds to determine the amount appropriated for charity care.

Hospitals must submit documentation to support amounts claimed as indigent patient care. This includes a copy of their procedures for determining indigence, steps used to verify a patient's financial information, and methods used to distinguish bad debts from indigence.