CMS Finalizes How It Will Cut Medicaid DSH Payments

Medicaid DSH PaymentsThe Senate passed a continuing resolution that would temporarily stop the implementation of Medicaid DSH payment cuts until Nov. 22, 2019.

CMS on Monday finalized a rule that will reduce Medicaid Disproportionate Share Hospital (DSH) payments by $4 billion next year and $8 billion a year until fiscal year 2025.

The new final rule will implement Medicaid DSH payment reductions stipulated by the Affordable Care Act, which requires CMS to annually reduce state allotments for Medicaid DSH payments to account for an increasing number of insured individuals following implementation of the legislation.

The final rule will fulfill CMS’ obligation starting on Oct 1.

Under the rule, CMS will primarily implement a method for reducing allotments of Medicaid DSH payments proposed in July 2017. The only difference between the method proposed in July 2017 and the one finalized in the new rule is that the finalized method will limit Medicaid DSH allotment cuts to 90 percent of a state’s original unreduced DSH allotment. Otherwise, CMS still plans to:

  • Separate states into low- and non-low DSH states
  • Apply a smaller percentage reduction on low DSH states
  • Impose the largest percentage reduction on states with the lowest percentages of uninsured individuals, states that do not direct their Medicaid DSH payments to hospitals with high levels of uncompensated care, and states that do not target their Medicaid DSH payments to hospitals with high volumes of Medicaid inpatients
  • Adjust reductions to account for states that used DSH payments for coverage expansion

Medicaid DSH payment cuts will apply to every state except for Tennessee, who DSH allotment is set at $53.1 million per year from fiscal year 2015 to fiscal year 2025 by federal law.

Hospital groups are still analyzing the rule, but their opinion on the matter has been made clear in the past. Earlier this year, for example, America’s Essential Hospitals, American Hospital Association (AHA), Association of American Medical Colleges (AAMC), and five other national hospital groups urged Congress to delay the Medicaid DSH cuts scheduled to take place starting Oct. 1, 2019.

The hospital groups explained that the industry has not realized the coverage gains envisioned by the Affordable Care Act. Therefore, Medicaid DSH payment cuts built on the assumption that coverage rates would increase are no longer appropriate.

According to a report released by the US Census Bureau earlier this month, the uninsured rate increased by 0.5 percentage points, or about 1.9 million more individuals, in 2018. Much of the change was due to a decrease in Medicaid enrollment, which fell by 0.7 percentage points during the period.

Hospitals have been granted more time in the past. Congress has delayed implementing the $44 billion in Medicaid DSH payment cuts since 2013 and policymakers are currently considering a short-term delay.

The House of Representatives last week passed a continuing resolution that would delay the scheduled Medicaid DSH payment cuts through Nov. 21. The Senate will likely review the bill this week and representatives are confident Senators will approve, according to a report from The Hill.

America’s Essential Hospitals, a trade group representing hospitals and health systems, thanked the House of Representatives for voting to postpone Medicaid DSH payment cuts and urged the policymakers to back other legislation that would provide relief to hospitals treating some of the most vulnerable patient populations.

“The House has demonstrated strong bipartisan support for the idea that DSH cuts cannot be justified in the face of a growing numbers of uninsured and persistently high uncompensated care costs,” the groups stated on its website. “Democrats and Republicans on the House Committee on Energy and Commerce have approved repealing $16 billion of the DSH cuts over the next three years, and we remain strongly behind this measure as a critical first step toward long-term relief.”

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