COD E R E D

through intergovernmental transfers, state appropriations, and federal matching funds. Aperformance review report from the Texas Comptroller’s Office in 1991 stated that large publichospitals were not getting their fair share of DSH payments considering their assessments andlarge amount of uncompensated care, and that other states used more local funds plusvoluntary donations and provider taxes to draw down more federal funds. The hospital districtsand state hospitals agreed to an increase in their assessments in 1991 (state hospitals paidlarger fixed amounts and the amount from hospital districts increased from 1 percent to 5percent of local ad valorem tax collections), which resulted in $52 million more in federalmatching funds that year. 90Texas created several additional DSH programs in the early 1990s. A second DSH programcalled the Special Supplemental Payment Program was created to help three state-ownedteaching hospitals (University of Texas hospitals in Galveston, Houston, and Tyler) with highamounts of uncompensated care. The DISPRO II program allowed the hospitals to transfer theamount of their annual charity care into a specific fund to be used as state matching funds todraw down more federal Medicaid dollars. A similar program called DISPRO III was created tohelp other hospitals with high amounts of Medicaid and indigent care. This program usedmonthly provider assessments of high-volume Medicaid providers, mandatory hospitalassessments, intergovernmental transfers, and voluntary donations from qualifying hospitals,and additional DSH payments were made to qualifying hospitals (public hospitals paidassessments for both DISPRO I and III). A fourth program, DISPRO IV, used 5 percent of thehospital assessments from DISPRO III as a state match for funds to make additional DSHpayments to about 90 rural hospitals. 91As stated in the previous section on Medicaid financing at the federal level, spending on theDSH program greatly expanded in the late 1980s, and in the 1990s Congress passed severalacts aimed at curbing these expenditures. The Medicaid Voluntary Contribution and Provider-Specific Tax Amendments of 1991 capped the DSH program in Texas at $1.513 billion (stateplus federal funds), and made the provider assessments in DISPRO III and IV no longer eligiblefor federal matching funds. 92 OBRA 1993 established caps on the DSH amounts that individualhospitals could receive, which was the sum of the hospital’s unreimbursed costs for Medicaidpatients and uninsured patients, and directed that at least one percent of the total patient-daysin a hospital must be from Medicaid patients in order for the hospital to be eligible to receiveDSH payments. 93 The state teaching hospitals in Texas lost significant funds when thehospital-specific caps were added to existing formulas. 94Due to federal changes and state recommendations, Texas modified the DSH program in 1994and merged the four previous DSH programs into one program. A new formula was establishedwhere all hospitals must qualify each year based on several variables. There are specialprovisions to enhance the funds given to the large public hospitals who transfer money for thestate match, and for qualifying children’s and rural hospitals. 95 The Texas Health and HumanServices Commission implemented several changes to DSH in FY 2001 and 2002. In FY 2001,the formula was weighted so transferring hospitals would receive more funds back andreimbursement for treating low-income patients would increase, and a minimum of 5.5 percentof DSH was set aside for rural hospitals. In FY 2002, DSH eligibility was expanded to includehospitals in small urban areas, so more hospitals can receive DSH payments in Abilene, Bryan,Longview, Lubbock, Midland, San Angelo, and Tyler. 96Due to these changes, DSH payments to state-owned hospitals decreased from $729 million to$480 million from SFY 1995 to 2003, but this was offset by more funds going to local hospitals.BBA 1997 set annual limits on the federal funds going to the Texas DSH program, but thoselimits were increased by the Medicare, Medicaid, and SCHIP Benefits Improvement andB-19