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CMS Issues Medicaid DSH Proposed Rule

May 17, 2013—The Centers for Medicare and Medicaid Services (CMS) May 13 released its proposed rule regarding implementation of the Medicaid Disproportionate Share Hospital (DSH) payment reductions established under the Affordable Care Act (ACA, P.L. 111-148 and P.L. 111-152). Comments are due July 12.

The ACA reduces state Medicaid DSH allotments annually from FY 2014 through FY 2020 (the annual reductions were extended through 2022 by later, unrelated legislation). The proposed rule lays out a methodology for reducing FY 2014 and FY 2015 allotments ($500 million and $600 million in aggregate cuts, respectively). CMS explains that it will promulgate at a later date rules implementing DSH reductions in FY 2016 and beyond.

The proposed methodology, called the DSH Health Reform Methodology (DHRM), would not take into account state decisions regarding Medicaid expansions. CMS explains this is because it lacks sufficient information about the potential impact of state Medicaid expansions. The agency expects to incorporate the impact of state Medicaid expansions in its methodologies for subsequent years.

The proposed DHRM would use the estimated unreduced DSH allotments as the base for calculating reductions. As required under the ACA, the DHRM would address low DSH and non-low DSH states as distinct groups and utilize a Low DSH Adjustment Factor to assure that low DSH states (in aggregate) incur a smaller percentage reduction than non-low DSH states.

Additional factors would adjust for each state’s level of uninsured individuals (the “uninsured value”) and whether the state directs DSH payments to hospitals with high Medicaid inpatient volumes (High Volume of Medicaid Inpatients Factor) and high levels of compensated care (High Level of Uncompensated Care Factor). These three factors would be weighted equally. CMS states that the weighting would incentivize states to direct Medicaid DSH payments to hospitals that provide significant levels of Medicaid services and uncompensated care.

The DHRM also would consider whether DSH allotments were included in budget neutrality calculations for coverage expansions created under “Section 1115” Medicaid demonstration projects.

CMS indicates in the proposed rule its intention (“outside of the proposed rule”) to require states to submit the information they use to deem DSH status. Additionally, CMS proposes that states regularly report the Medicaid provider number, Medicare provider number, and total annual inpatient/outpatient costs of each DSH hospital.


Christiane Mitchell
Senior Director Health Care Affairs
Telephone: 202-828-0461

Allison M. Cohen, J.D., LL.M.
Senior Policy and Regulatory Specialist
Telephone: 202-862-6085


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Jason Kleinman
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