CMS finalizes rule on DSH cuts worth up to $8B annually through 2025

Medicaid on paper and a stethoscope

The Centers for Medicare and Medicaid Services finalized its rule implementing cuts to state Medicaid Disproportionate Share Hospital (DSH) allotments by $4 billion next year. 

Under the rule implementing reductions under stipulations in the Affordable Care Act, DSH payments will set cuts worth $8 billion for the following five years. The cuts are set to take effect Nov. 22.

The background: Federal law requires that state Medicaid programs make DSH payments to qualifying hospitals that serve a large number of Medicaid and uninsured individuals. But anticipating lower rates of uninsured patients and lower levels of uncompensated care, the ACA modified the amount of funding available to states under the Medicaid program. 

RELATED: 5 ways hospitals can mitigate the risks from a growing uncompensated care burden

In the final rule, CMS incorporated multiple factors into its methodology for calculating cuts including a limit to the reductions applied to 90% of its original unreduced allotment. 

It also called for: 

  1. Separating states into non-low DSH states and low-DSH states;
  2. Allocating larger cuts to states that have lower uninsured percentages;
  3. Applying a low DSH adjustment percentage to adjust the non-low DSH and low DSH state groups; 
  4. Dividing each state's DSH cuts among three groups based on factors of uninsured patients, uncompensated care and volumes of Medicaid inpatients.
  5. Limiting the cuts applied to each state's total unreduced DSH allotment to 90% of its original unreduced allotment. 

RELATED: MACPAC to Congress: Roll out DSH cuts first in states with unspent funds 

The changes apply to all states with the exception of Tennesee, which has an established $53.1 million per year allotment until fiscal 2025. 

Hospital groups indicated they were still analyzing the final rule before they would comment on it. 

It remains to be seen how Congress will respond. Already, the House of Representatives approved a temporary extension of DSH funding through Nov. 21 in a continuing resolution and the Senate is expected to vote on it this week, according to America's Essential Hospitals. If passed, it would give Congress more time to reach a long-term agreement to stop the cuts, they said

The Federation of American Hospitals sent a letter to leaders of the House Energy & Commerce Committee in July supporting legislation that would repeal the cuts in fiscal 2020 and fiscal 2021 while asking the cuts be reduced in fiscal 2022.