CMS Proposes to Implement Changes to Medicaid DSH Calculations

CMS has proposed a rule to update the regulatory requirements of the Disproportionate Share Hospital (DSH) program in response to the Consolidated Appropriations Act of 2021, including implementing provisions related to including third-party payments for calculating Medicaid hospital-specific DSH caps.

The proposed rule would also clarify regulatory language for the DSH program, including payment and financing definitions, refine administrative procedures for state compliance with federal regulations, and remove regulatory requirements that CMS said have been “difficult to administer and do not further the program’s objectives.”

States must provide DSH payments to qualifying hospitals that serve a disproportionate share of uninsured and Medicaid patients. Which hospitals receive the payments and how much depends on state Medicaid program rules. However, federal law requires hospital-specific limits on DSH payments.

Overall, a hospital cannot receive DSH payments beyond the costs it incurred for providing inpatient and outpatient hospital services during the year to certain Medicaid and uninsured patients, less other payments it received from uninsured patients and under the Social Security Act.

The Consolidated Appropriations Act of 2021 modified the Medicaid portion of the hospital-specific DSH limit calculation to include only costs and payments for services delivered to patients for whom Medicaid is the primary payer for such services.

“Accordingly, the limit excludes costs and payments for services provided to Medicaid beneficiaries with other sources of coverage, including Medicare and commercial insurance),” the proposed rule states.

The updated hospital-specific DSH cap calculation applies to all qualifying hospitals except those in the 97th percentile of all hospitals for inpatient days made up of patients who, for such days, were entitled to benefits from Medicare Part A and supplemental security income. These hospitals will receive a higher hospital-specific limit.

The federal law enacted the changes to the Medicaid DSH program on Oct. 1, 2021. However, CMS said in the proposed rule that data limitations prevented the agency from clarifying which hospitals qualify for the exception for the 97th percentile.

“This rule proposes how CMS would determine which hospitals qualify for this exception,” the proposed rule says.

Hospitals are expecting a significant cut to their Medicaid DSH payments by Oct. 1st if lawmakers do not address it. The Affordable Care Act included an $18 billion reduction to Medicaid DSH payments to be phased in over a couple of years. The cut is to account for policies like Medicaid expansion that were expected to lower uncompensated care for hospitals.

However, 11 states have not expanded Medicaid under the provisions of the ACA. Additionally, one state has adopted Medicaid expansion but has not implemented it.

Congress has delayed the massive cut to the Medicaid DSH program nine times. Without more intervention, the government will reduce Medicaid DSH payments to hospitals by $8 billion between 2024 and 2027.

The proposed rule addresses the cuts by defining the methodology for determining the annual, state-by-state DSH allotment reduction amounts. The amounts will be based on five factors—uninsured factor, Medicaid volume factor, uncompensated care factor, low DSH State factor,  and the budget neutrality factor (BNF)—which are defined in the rule.

The proposed rule also removes administrative inefficiencies from publishing preliminary and final annual DSH allotments and national expenditure targets in the Federal Register.

Comments on the proposed rule are due by April 24th.