Medicare Hospital Subsidies: Money in Search of a Purpose, by Sean Nicholson, AEI Press, 2002

Teaching hospitals with "disproportionate" numbers of poor patients receiving special subsidies under Medicare, above and beyond the standard payments that all hospitals receive for treating Medicare patients. In recent years these subsidies have been criticized both for raising health care costs and for lacking evidence that they achieve the policy objectives used to justify them. In fact, the subsidies create perverse incentives for hospitals to train more physicians, close beds, and treat fewer uninsured patients.

In response to such criticism, the Balanced Budget Act of 1997 corrected some of the flaws in the teaching hospital subsidy but essentially left untouched the subsidies to hospitals that treat large numbers of poor patients. The costs of the latter subsidies remain unchecked, and the program's design still penalizes hospitals for admitting uninsured patients.

This study review the rationales, legislative history, and financial incentives of both types of hospital subsidies. After this detailed analysis, the author suggests alternative designs for the programs that could curb their costs and ensure they actually achieve the goals for which they were created.

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Table of Contents

Foreword: Christopher DeMuth
Acknowledgments

   1. Introduction
   2. Graduate Medical Education Policy
   3. Disproportionate Share Hospital Payments
   4. The Effect of the Medicare GME and DSH Subsidies
   5. Conclusion

Statistical Appendix
Notes
Reference
About the Author

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