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CMS Issues Final Rule on Medicaid DSH Definition of “Uninsured”

December 5, 2014The Centers for Medicare and Medicaid Services (CMS) Nov. 28 issued a final rule defining the term “uninsured” in the context of calculating the hospital-specific limit on Medicaid disproportionate share hospital (DSH) payments. The rule will take effect on Dec. 31 and will apply to DSH audits and reports submitted for state plan rate year 2011 and subsequent years.

The ruling is of particular interest to major teaching hospitals, which represent just five percent of all hospitals, yet account for over one-quarter of all Medicaid discharges and 40 percent of all hospital charity care, because CMS defines “uninsured” for purposes of calculating the hospital-specific Medicaid DSH limit. The AAMC submitted comments on CMS’s proposed change to the definition in 2012 that urged the agency to extend the definition to include patients who lack insurance for specific services or who have exhausted their covered benefits [see Washington Highlights, Feb. 17, 2012].

The final rule’s amendments to the definition would allow a hospital’s Medicaid shortfall to include the costs associated with inpatient and outpatient hospital services provided to patients who have exhausted applicable state coverage limits. Under the revised definition, uninsured costs also would include costs associated with patients who have reached annual or lifetime insurance limits or who otherwise have exhausted their covered benefits. Services rendered to these patients could then be included in the calculation of a hospital’s Medicaid DSH limitation. 

Additionally, when inpatient and outpatient services are provided by a non-Indian Health Services (IHS) hospital to individuals and outside an IHS health services contract, these can be counted as uninsured costs.

Under the final rule, bad debt, unpaid coinsurance, and hospital based physician costs would remain unallowable costs for purposes of calculating the DSH limit.


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Washington Highlights, a weekly electronic newsletter, features brief updates on the latest legislative and regulatory activities affecting medical schools and teaching hospitals.

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Jason Kleinman
Sr. Legislative Analyst, Govt. Relations
Telephone: 202-903-0806