Aggressive Non-Financial Reporting in Medicare Cost Reports: An Empirical Investigation of Disproportionate Patient Percentage Reporting

Abstract

This paper examines the link between regulatory reporting and statutory health care reimbursement formulas. I find strong evidence that hospitals have used aggressive regulatory reporting to extract approximately $60 million per year from Medicare’s Disproportionate Share Hospital (DSH) program — a program designed to ease the burden on hospitals treating low income populations. Similarities between the DSH program and current payment reforms are discussed along with policy implications. Overall, evidence suggests that noneconomic metrics can be unreliable when threshold based incentives are present, especially when the reporting party is also the program beneficiary; and current penalties for filing inaccurate regulatory reports are ineffective at curbing reporting manipulations around thresholds.