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CMS Releases Proposed Rule on Annual Reduction to State Medicaid DSH Allotments

July 28, 2017—The Centers for Medicare and Medicaid Services (CMS) July 27 released a proposed rule that delineates the methodology to implement annual reductions to state Medicaid Disproportionate Share Hospital (DSH) allotments, beginning in fiscal year (FY) 2018 and ending in FY 2025.  

The Affordable Care Act (ACA, P.L. 111-148 and P.L. 111-152) specifies the aggregate annual reduction amounts – $2 billion in FY 2018 and increasing by $1 billion each year to a maximum of $8 billion for FY 2024 and FY 2025. In anticipation of lower uninsured rates and lower levels of hospital uncompensated care, the ACA modified the amounts of funding available to states under the Medicaid program and required CMS to create a methodology – known as the DSH Health Reform Methodology (DHRM) – that accounts for the five factors specified in the statute for reducing aggregate DSH payments. 

As required by the statute, the DHRM must impose the largest percentage DSH allotment reductions on the states that have the lowest percentages of uninsured individuals. The DHRM is calculated on an annual basis based on the most recent data available to CMS at the time of the calculation.  CMS will subtract the state-specific DSH allotment amount from that state’s final unreduced DSH allotment. This amount is the state’s final DSH allotment for the fiscal year. CMS made clear that distribution of the DSH allotments will be left up to each state.


Mary Mullaney
Director, Hospital Payment Policies
Telephone: 202-909-2084


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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