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July 31, 2017

CMS proposes $43B in cuts to Disproportionate Share Hospital payments

Daily Briefing

    CMS on Thursday published a proposed rule for implementing $43 billion in Medicaid Disproportionate Share Hospital (DSH) payment cuts over eight years.

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    The Affordable Care Act called for annual reductions to Medicaid DSH payments from fiscal year (FY) 2014 to FY 2020. Those reductions were later delayed by Congress to take effect from FY 2018 to FY 2025.

    The reductions in DSH payments were meant to be offset by the law's Medicaid expansions, which were expected to lower uninsured rates and lower levels of hospital uncompensated care. However, a Supreme Court ruling gave states the option to choose whether to expand their Medicaid programs, and 19 states have chosen not to expand Medicaid. As such, many hospitals in those states face higher uncompensated care costs than anticipated under the ACA.

    Proposed rule details

    Under the proposed rule, Medicaid DSH payments would be cut by $2 billion in FY 2018, growing by $1 billion annually until cuts reach $8 billion in FY 2024. The DSH payment cut would remain at $8 billion in FY 2025, bringing the total to $43 billion in payment cuts over eight years.

    The proposed rule details the DSH Health Reform Methodology (DHRM) that would be used to calculate the cuts for each state. According to the proposed rule, states' DSH payments would be measured based on the state's:

    • Uninsured rate, weighted at 50 percent;
    • Uncompensated care rate, weighted at 25 percent; and
    • Medicaid volume, weighted at 25 percent.

    DSH payments also would be based on whether a state is considered a "low DSH" state, which according to the Kaiser Family Foundation means a state's DSH payments had traditionally accounted for no more than 3 percent of their overall Medicaid spending.

    According to CMS, the methodology would ensure hospitals with the most need would receive the most funding. The methodology would include data from DSH Medicaid Inpatient Utilization Rate data, U.S. Census Bureau, and existing state DSH allotments.

    According to a June issue brief from the Medicaid and CHIP Payment and Access Commission, the proposed cuts would likely cause state payments to fall by a range of 1.2 percent to 33.5 percent in FY 2018.

    CMS is accepting public comments on the proposed rule until Aug. 28.


    Health care attorney Barbara Eyman said CMS' proposed methodology would limit cuts for states that did not expand their Medicaid programs because of the formula's emphasis on the uninsured rate. However, Eyman said hospitals in all states should expect to see DSH payment reductions.

    America's Essential Hospitals Policy Director Erin O'Malley raised some concerns about the proposed rule, saying, "Our hospitals simply can't sustain cuts of this magnitude without reducing services or scaling back their workforce" (Ellison, Becker's Hospital CFO Report, 7/28; Pelham, Bloomberg BNA, 7/27; Betbeze, HealthLeaders Media, 7/28; Dickson, Modern Healthcare, 7/28; AHA News, 7/27).

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