CMS offers rule on Medicaid DSH payments

The CMS on Friday released a final rule (PDF) that lays out the methodology to reduce Medicaid disproportionate-share hospital payments for fiscal years 2014 and 2015.

Medicaid DSH payments are meant to help hospitals that treat large numbers of low-income patients and provide high levels of uncompensated care.

The Patient Protection and Affordable Care Act required about $18.1 billion in reductions to Medicaid DSH payments from fiscal years 2014 to 2020. The idea is that hospitals serving low-income patients will benefit from having more of their patients covered by Medicaid under the law, and won't need the DSH payments as much. The reductions also were intended to help offset the cost of the of the Medicaid expansion to adults with incomes of up to 138% of the federal poverty level. But the benefit to hospitals of the Medicaid expansion was narrowed by the 2012 U.S. Supreme Court rule allowing states to opt out of the Medicaid expansion, and about half the states have done so. Nevertheless, hospitals in those states still face the DSH payment cuts.

The final rule released Friday is closely aligned with the agency's proposed regulation in May and includes a reduction methodology only for fiscal years 2014 and 2015. The CMS plans to revisit the way it calculates Medicaid DSH payments and issue new rules in 2016 and beyond.

In the next two years, the federal share of Medicaid DSH payments will be reduced by $1.1 billion, including a $500 million reduction in 2014 and a $600 million decrease in 2015. The ACA included five factors that the reduction methodology must follow, including one that says states that do not target their DSH payments to hospitals with high levels of uncompensated care will receive larger reductions. The same is true for states that don't target their payments to hospitals with higher volumes of Medicaid patients. And states with the lowest percentages of uninsured patients will receive larger reductions.

America's Essential Hospitals, a trade group that represents safety net providers, praised the administration's cautious approach.

"But in light of the Supreme Court's decision that rendered the Medicaid expansion optional for states, the level of Medicaid DSH cuts in existing law can no longer be justified," Xiaoyi Huang, a spokeswoman for the association, said in a statement.

"Not only should CMS closely monitor the impact of cuts on the essential hospitals that care for society's most vulnerable, but the cuts should be delayed until policymakers can better understand the current and ongoing needs of patients who rely on this critical program and the hospitals that care for them," Huang said.

According to the 84-page regulation, the CMS received 87 public comments from state Medicaid agencies, provider associations and individual providers.

“The final rule is substantively the same as the method in the proposed rule, but includes some technical updates, corrections and clarifications after reviewing the public comments…” the rule said.

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