Examines whether the Medicare disproportionate share percentage (DPP) is a useful predictor of Medicare costs per adjusted discharge and whether it is a good predictor of uncompensated care burdens. Findings indicate that the DPP is not a useful predictor of differences in the cost of treating Medicare patients (and is a statistically significant but weak predictor of uncompensated care burdens); the analysis does not support the contention that treatment of substantial numbers of low-income patients with public insurance directly causes hospitals to incur higher costs per discharge. It finds no support for basing DSH payments on DPP levels. The study concludes that if its results were confirmed in a national study of DSH payments, operating costs, and uncompensated care costs, there would be justification for fundamentally changing DSH payment methodology. Furthermore, since the results indicate that patient needs per adjusted discharge unit are unrelated to the DPP at both rural and urban hospitals, the authors see no rationale for differential treatment between rural and urban providers. Report available by contacting the Center.