Shelton G. Hopkins, MD
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DSH and UPL Explaned!

Now THAT’S a headline. It’s worthy of a grocery store checkout-line magazine and about as accurate. The truth is that DSH and UPL are payment systems that are crucial to the bottom line of many hospitals — and that are poorly understood by many of those who depend on them. Reading this article will not make you capable of being a consultant to a hospital system trying to determine the correct payments it should receive, but I hope it will help you understand the basic idea behind DSH and UPL, and why they are important. You also should understand why the hospitals are concerned with the possible disappearance of these funds.

The primary reason for these payments is the difficulty that many hospitals have had in staying afloat when caring for indigent and poorly insured patients. DSH is the acronym for Disproportionate Share Hospital and is pronounced “Dish.” UPL is Upper Payment Limit and is pronounced “U-P-L.” The determination of each is as exciting as watching a cricket match (unless you are from a Commonwealth country, in which case it’s as exciting as watching baseball). However, the checks are huge: Medicaid DSH payments in 1990 were at $1 billion, and, by 1992, payments had hit $17.4 billion. The payments started in 1986 in response to hospital closings and threatened closings. Because of the rapid payment rise in the early ‘90s, a 12 percent cap of total Medicaid payments was created, and the amounts decreased. In 2009, $11.3 billion was paid. Those numbers are why people in the hospital industry as well as multiple other medical service areas are willing to watch that cricket match and to do so with intense interest.

There is a marked difference among states in how much money they receive and how they use it. In 2009, New York was the big dollar winner with $1.6 billion, but Louisiana was the percentage winner with $750 million. Texas did pretty well with $96 million.

A big knock on DSH payments is that the states often can get away with using the money outside of its intent. In fact, the reason for the 12 percent cap is that some of the states started gaming the system (surprise, surprise) early on and spending the funds wildly outside their intent. Other states either were more moral or were slower to catch on, and so received low amounts. To add insult to injury, the disproportioned DSH payments then were frozen at those levels. After more than a decade, provisions were made to gradually increase (wouldn’t have wanted them to O.D. on too much help) payments to the “low DSH” states. Texas was in the middle.

The states can spread the money as they please, but within certain parameters. The DSH hospitals must have either a Medicaid inpatient utilization rate >1 SD above the mean for other hospitals in the state or a “low-income” utilization rate >25 percent. There is a huge opportunity for favoritism and other shenanigans because the states can give to other hospitals as long as hospitals that meet the criteria are included. I’m positive that Texas is not involved in any of that. The states do have to make annual audited reports to the secretary of the U.S. Department of Health and Human Services. As mentioned above, the determination of payment levels is excruciating. As an example, here is a quote from “DSH Program: Your Questions Answered” regarding the definition of “low-income”:

The low-income utilization rate is unique to the DSH program. The rate is the result of the following computation: [(Title XIX inpatient hospital payments plus inpatient payments received from state and local governments) divided by (gross inpatient revenue multiplied by cost-to-charge ratio)] plus [(total inpatient charity charges minus inpatient payments received from state and local governments) divided by (gross inpatient revenue)].

And that is just one little piece of the federal formula.

In essence, DSH is a shared state/federal payment using formulae of Medicaid-eligible and/or low-income hospital days to determine payment levels. That encompasses the program like saying that diabetes is a sugar-level problem. Oh, yes — and there is Medicare DSH, also.
UPL exists to (partially) fill in the blanks left after DSH payments. Governments know that Medicaid does not pay the bills (it’s about 60 percent of costs, according to the Texas Hospital Association) so, if DSH doesn’t make up the difference, then Upper Payment Limit payments can be made. The idea is that if hospitals can meet the definitions and criteria under UPL rules, then they can get payments to fill in the gap between what they were paid by Medicaid and what they would have been paid at the Medicare rate. The definition includes the requirement that Medicaid patient expenses include only fee-for-service expenses because the assumption is that, if a hospital contracts to provide service in a capitated system, then those rates must be sufficient. This exclusion of capitated revenue is coming back to haunt the hospitals because one of the major pushes of the Patient Protection and Affordable Care Act and various cost-saving proposals at the state level is to expand capitated managed care for the Medicaid program. Politicians widely believe that that will produce satisfactory health care at reduced cost (the accuracy of that belief is another subject), so capitation gradually will be done. Using current definitions, that will eliminate much, if not all, of the UPL money for the affected hospitals. As you might guess, hospitals are making efforts to allow the feds to see the savings from managed care without penalizing the states for agreeing to such programs. By today’s rules, the feds and the states save money with managed care, but the states have an overall increase in expense because they lose UPL dollars. The Texas Legislature is tussling over this negative incentive now.

The problem was bound to come to a head. The current economic situation simply has thrown it into sharper focus for us non-healthcare wonks. The money for DSH and for UPL is 40 percent state money. If there is no money without more revenue from taxes, for example, then the Legislature will make cuts. Reductions in funding mean reductions in care or availability to our patients. They are the real bottom line.

Sources: Medicaid in the Crosshairs (Texas Hospital Association); DSH Program Background (hrsa.dshs.wa.gov); Improving your DSH payments (humanarc.com); Tlc.state.tx.us/pubspol/dshprogram.pdf; National Health Policy Forum 2009; Lewin group Code Red Texas UPL for Texas State Hospitals upl_calculation.pdf; to find info on your own, use “Upper Payment Limit” and “Disproportionate Share Hospital,” not the short forms.

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