The Hospital Disproportionate Share (DSH) Program

The following is an overview of Connecticut's Uncompensated Care Pool and Uncompensated Care Program, including its history, amounts paid to Hospitals, and funding sources.

Current DSH Program:
OHCA calculates the DSH percentages for Connecticut’s 31 acute care hospitals and provides the information to the Department of Social Service (DSS) for payment to the hospitals. DSS administers the majority of all Connecticut’s DSH programs.

July 1, 1995 - Present
With the passage of the Federal Omnibus Budget Reconciliation Act of 1993 (OBRA 93), Connecticut had to provide Centers for Medicare and Medicaid Services (CMS) with an assurance that the DSH amount each Hospital would receive in the upcoming year would not exceed each hospital's specific Upper Payment Limit (UPL).

To comply with OBRA 93, CT first calculates each Hospital's Baseline DSH payments for the year. Each Hospital's UPL is then calculated. All Hospital's with a Baseline DSH payment that exceeds their UPL have their DSH payment amount reduced to the Upper Limit amount. The total amount of these reductions are then redistributed to Hospital's with room under their Upper Limit, based on each Hospital's room as a percentage of the total statewide room.

HISTORY
Since its inception in December of 1991, funds have been provided to Connecticut's acute care hospitals, based upon each hospital's uncompensated care (UC) as a percentage of statewide total UC. In addition to bad debt and free care, Connecticut's definition of UC has included under-compensated care associated with government payers.

    December 1991 through April 1, 1994

  • 100% of the funding was provided by the Hospitals.
  • Each week, hospitals paid into the UC pool based on a uniform assessment factor and received back funds based on a hospital specific payment factor.
  • In addition to free care and bad debt, uncompensated care included underpayments from government payers including Medical Assistance, Medicare and CHAMPUS.
  • The UC pool was an "off budget" item that was not part of the State of Connecticut's (CT) budget.
  • In March 1994, a federal court ruled that the pool system used by many states violated the Employment Retirement Income Security Act (ERISA).

    April 1, 1994 - June 30, 1995
  • In response to the ERISA decision, CT's legislature replaced the UC pool with a UC program.
  • The UC program consisted of disproportionate share hospital (DSH) payments · made to the Hospitals and taxes that the Hospitals levied on non-government payers and paid to CT.
  • The calculation was as follows:
    A Baseline underpayment equal to the cost of bad debt, the cost of free care and state medical assistance underpayment was used to determine how much each Hospital is to receive in DSH Payments.
  • To bring the charge level down to a "cost level" a cost ratio was calculated using the total net revenue from all payers divided by the total charges from all payers.
  • The cost ratio was multiplied by the bad debt and free care charges to yield the cost of bad debt and free care.
  • Total Medical Assistance (including Medicaid and general assistance) charges were multiplied by the cost ratio and medical assistance accrued payments were then subtracted to yield the medical assistance underpayment.
  • The sum of the cost of bad debt, the cost of free care and the medical assistance underpayment equals the baseline underpayment.
  • Each Hospital's baseline percentage of the appropriation was calculated by dividing the Hospital's baseline underpayment by the statewide baseline underpayment. The Hospital's percentage is then multiplied by the DSH appropriation to calculate each hospital's Baseline DSH payments for the year.
  • The UC program made semi-monthly disproportionate share payments (DSH) payments from CT's general fund.
  • The Hospitals remitted gross earnings tax on a quarterly basis and sales tax on a monthly basis.
  • CT required the Hospitals to incorporate both taxes in their bills to payers.
  • Since no direct correlation could be made between the taxes paid in and the DSH paid out, it was believed that the UC program would avert the court's ERISA criticism.
  • Although the United States Supreme Court later vacated the March 1994 ERISA order, CT decided not to revert back to a UC pool.

    History of DSH appropriations and sources of UCP DSH funding
  • FY 1994 - $258 million was paid to Hospitals in UC pool and UCP DSH payments funded by $259 million in Hospital assessments and taxes collected and remitted by the Hospitals.
  • FY 1995 - $343 million in UCP DSH and related payments funded by $380 million in gross earnings and sales taxes and FY 1994 assessment settlements.
  • FY 1996 - $269 million in UCP DSH and related payments and $322 million in gross earnings and sales taxes.
  • FY 1997 - $254 million in UCP DSH and related payments and $265 million in gross earnings and sales taxes.
  • FY 1998 - $254 million in UCP DSH and related payments and $243 million in gross earnings and sales taxes.
  • FY 1999 - $215 million in UCP DSH and related payments and $230 million in gross earnings and sales taxes.
  • FY 2000 - $212 million in UCP DSH and related payments and $146 million in gross earnings and sales taxes.
  • FY 2001 - $177 million in UCP DSH and related payments and $ 88 million in sales taxes.
  • FY 2002 - $100 million in UCP DSH and related payments and $0 in taxes.
  • FY 2003 - $100 million in UCP DSH and related payments and $0 in taxes.
  • FY 2004 - $95 million in UCP DSH and related payments and $0 in taxes.

History of Hospital Taxes
  • FY 1994 - 11% Gross Earnings tax and 6% Sales tax established
  • FY 1997 - Gross Earnings tax rate reduced to 9.25%
  • FY 1998 - Gross Earnings tax rate reduced to 8.25%
  • FY 1999 - Gross Earnings tax rate reduced to 7.25%
  • FY 2000 - Gross Earnings tax rate reduced to 4.5% for the six months ending   3/31/00
  • FY 2000 - Gross Earnings tax was repealed on April 1, 2000
  • FY 2000 - Sales tax rate was reduced to 5.75% on July 1, 2000
  • FY 2001 - Sales tax was suspended from July 1, 2001 through July 1, 2003 and then later repealed.