I’ll try to make this somewhat technical change in a proposed rule from the Centers for Medicare and Medicaid (CMS) as simple as possible.  The proposed rule will make a difference.  Here’s why:

Hospitals that serve a large number of uninsured patients – a “disproportionate share” of uninsured (or low-income) patients – may be entitled to receive  ”reimbursement” of the costs (or charges, but let’s not quibble here) of treating those patients because those patients cannot pay for those services.  The states administer this program by which hospitals receive these payments.  Now it intuitively makes sense that the amount of DSH payments hospitals receive should not exceed the total dollar amount of uncompensated care that hospitals provide.  In other words, under the system the uncompensated care provided should equal the “disproportionate share” payment received.

The problem, as always, is found in the definitions. Here, the issues are what exactly is “uncompensated care,” and of what it is composed?  Suppose someone with insurance but with many ailments and health problems comes to the hospital.  The patient’s insurance covers examinations, lab tests, and diagnostic screenings.  The patient is very sick, and all of the examinations reveal that she, indeed, needs a new liver, through an organ transplant.  But what happens if her insurance does not cover organ transplants?

Under the current rule, according to CMS, the definition of “uncompensated care” could be interpreted to exclude the costs of services provided to patients with some type of insurance where the patient’s insurance covered some, but not all, of the hospital services provided to that patient.  In short, if Hospital A has a patient with some insurance who requires services that the insurance doesn’t cover, Hospital A cannot treat the unpaid services as “uncompensated care” for purposes of receiving its “DSH” payment.   So, the hospital above would not receive any payment for the liver transplant itself.  Ouch.

Put very simply, in order to receive the “DSH” payments, hospitals must provide the states each year with information on the dollar amount of care provided to “uninsured individuals.”  The rule as proposed simply would define “individuals with no health insurance” as those “who have no insurance (or other source of third party coverage) for the services furnished during the year.”

This change will make a difference to hospitals because the dollars expended for services provided to “under-insured individuals” are remarkably high.