Dive Brief:
- The CMS finalized a rule on Tuesday recalculating disproportionate share hospital payments, or reimbursements for hospitals serving a high proportion of low-income patients. Under the new definition, hospitals can only receive reimbursements for services rendered to beneficiaries for whom Medicaid is their primary insurer.
- Congress tasked the CMS with clarifying DSH calculations in its Consolidated Appropriations Act of 2021. The final rule aims to reduce DSH overpayments by limiting hospitals’ ability to receive government and private payer funds for the same service, according to the rule.
- In total, the CMS’ new calculations will result in an $8 billion reduction in DSH payments annually from fiscal year 2024 to 2027, according to the rule.
Dive Insight:
How DSH payments are calculated has been a hotly contested issue in recent years, landing in front of the U.S. Supreme Court in 2019 and again in 2022. Most recently, the court considered which Medicare patients ought to be counted toward DSH hospitals’ Medicare payments.
The government has recently focused on DSH overpayments for Medicaid services, due to a lack of transparency from hospitals and inaccurate audits, according to the final rule.
A 2022 study from Health Affairs found that approximately a third of DSH Medicaid payments in 2015 went to hospitals that didn’t meet program criteria.
The CMS first aimed to implement annual reductions in October 2013. However, efforts to put the revised methodology in place were stymied by multiple Congressional delays, according to the agency. Most recently, in January Congress delayed the $8 billion dollar DSH cuts until March 8.
Under the new rule, CMS would redistribute overpayments when identified to other hospitals within the same state.
The new rule also has an exemption for safety-net hospitals with the highest concentrations of low-income patients, defined as those in the 97th percentile of inpatient days treating patients who qualify for Medicare Part A and Supplemental Security Income benefits.
DSH funds have received increased attention as the number of Americans reliant on Medicaid has ticked up. As of October, over 80 million Americans were enrolled in the safety-net program, not accounting for the impact of the ongoing Medicaid redetermination process, which is estimated to have disenrolled 16.9 million beneficiaries as of February.
The American Hospital Association, one of America’s largest medical lobbies, alleges that providing care for the Medicaid population at times strains hospitals’ resources, because Medicaid typically pays less than the cost of care.
Medicaid paid 88 cents for every dollar spent by hospitals caring for Medicaid patients in 2020 — including DSH and non-DSH supplemental payments, according to the AHA.
The AHA opposed changes to the DSH calculations when the CMS proposed the rule last year.
“For many hospitals and health systems, this policy has or will lower the hospital-specific DSH limit at a time when hospitals can least afford it,” the lobby wrote in April.
The Medicaid and CHIP Payment and Access Commission echoed concerns about the cuts — which it calculated as being a 54% reduction in 2024. MACPAC noted in a report last year that the scheduled payment cuts “may disrupt the financial viability of some safety-net hospitals,” and recommended a gradual reduction in reimbursements.
The AHA did not respond to a request for comment by press time.
Correction: A previous version of this story contained inaccurate information about comments on the rule. The story has been updated.
