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September 25, 2019

Hospitals will see $4B DSH payment cut in 2020 under CMS rule

Daily Briefing

    CMS on Monday finalized a rule outlining how it will calculate annual Medicaid disproportionate share hospital (DSH) payment cuts from fiscal year (FY) 2020 through FY 2025.

    Cheat sheet: What you need to know about the ACA


    The Medicaid DSH program gives hospitals that serve a disproportionate number of Medicaid and uninsured patients additional payments to help cover the costs of care. However, the Affordable Care Act included a provision to cut the payments in anticipation of there being fewer uninsured patients under the law.

    CMS in 2013 and 2017 issued proposed rules to implement the ACA-mandated cuts but hospital groups have argued that the cuts are too steep because not all states expanded their Medicaid programs and many still treat high numbers of uninsured patients.

    As such, Congress has continually delayed them from taking effect. The cuts currently are scheduled to take effect Oct. 1, but Congress is acting again to delay them. Last week, the House passed a short-term spending resolution (HR 4378) which would delay them until Nov. 21. The Senate is expected to consider the legislation this week.

    Final rule details

    Barring action by Congress, CMS will implement the new final rule for DSH payments on Oct. 1. CMS' final method for calculating DSH payment cuts is largely in line with the 2017 proposal, according to HealthcareDIVE. It will take into account five factors:

    • The percentage of uninsured in each state;
    • The volume of Medicaid inpatients in each state;
    • The level of uncompensated care in each state;
    • The low DSH adjustment, which takes into account states that historically have received lower DSH payments relative to their total Medicaid spending; and
    • Budget neutrality factors.

    According to Healthcare DIVE, the main change from the 2017 proposed rule is a new state-specific cap on allotment reductions. The final rule will cap allotment reductions at 90% of the original allocation for that fiscal year for each state.

    All told, CMS estimated the final methodology would reduce overall DSH payments by $4 billion for FY 2020 and reduce payments by $8 billion a year from FY 2021 through FY 2025. According to Inside Health Policy, the Medicaid DSH payment cuts will apply to the District of Columbia and all U.S. states except Tennessee (Brady, "Transformation Hub," Modern Healthcare, 9/23; Gooch, Becker's Hospital Review, 9/24; Muchmore, Healthcare DIVE, 9/24; Stein, Inside Health Policy, 9/23 [subscription required]; Final rule, 9/23).

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