CMS wants to clarify DSH payment limits for hospitals


The Centers for Medicare & Medicaid Services has issued a proposed rule that would clarify hospital-specific limitations on Disproportionate Share Hospital (DSH) payments.

Specifically, the agency is trying to clarify what comprises uncompensated care costs. CMS proposes that those costs would be any expenses for care that remain after hospitals receive their Medicaid payments or any other payments from third parties to cover the cost of care.

“Our policy--that Medicare and other third-party payments must be taken into account when determining a hospital’s costs for the purpose of calculating Medicaid DSH payments--ensures that the DSH payment reflects the real economic burden of hospitals that treat a disproportionate share of low-income patients (i.e. the 'situation' of the hospitals)," CMS wrote in the proposed rule.

The agency cited in the proposed regulations a scenario of two hospitals in the same state. One only receives Medicaid payments. The other receives payments for Medicaid and dual-eligible Medicare enrollees. “If the hospital-specific limit did not take into account the Medicare payments, the second hospital would be able to receive DSH dollars in excess of its uncompensated care costs,” the proposal said.

The issue has become particularly sensitive in recent years as DSH payments have been curtailed as a result of the Affordable Care Act, which was originally intended to significantly expand Medicaid eligibility in all states. However, because of a 2012 U.S. Supreme Court decision, Medicaid expansion became voluntary on the states' behalf. A total of 18 states have yet to expand Medicaid even though hospitals in those states have shrunken DSH payments. The situation has caused significant duress to some hospitals in non-expansion states such as Georgia. Hospitals in other states, such as North Carolina, have gone so far as to sue. But even in Medicaid expansion states, such as California, recent DSH payment cuts have been significant.

CMS acknowledged in the proposed rule that there will be instances when Medicaid payments will be greater than the cost of treating Medicaid eligible patients. However, to avoid overstating the hospital-specific limit, the agency said "we nonetheless require that all Medicaid payments be included in the calculation, explaining that any 'excess' payments will be applied against the uncompensated care costs that result from the uninsured calculation.”

The same principle applies to payments received from third- party payers that exceed the cost of the service provided to a particular Medicaid eligible individual, according to the proposed rule.

- read the proposed rule (.pdf)