CMS releases proposed rule for DSH allotment reductions

Last week, CMS released a proposed rule outlining reductions in the federal Medicaid dollars allocated to each state to fund their Medicaid Disproportionate Share Hospital (DSH) programs beginning in FY 2018.

In anticipation of lower uninsured rates and lower levels of hospital uncompensated care, the ACA set forth aggregate reductions in federal funding for DSH payments. The reductions were delayed from FY 2014 through FY 2020 to FY 2018 through FY 2025.

The proposed rule does not include the actual FY 2018 DSH funding for each state, but does include a chart that illustrates the estimated FY 2017 funding for each state under the proposed rule for a total reduction of $2 billion.

Reductions would increase by one billion dollars each fiscal year, beginning with $2 billion in FY 2018 and ending with an $8 billion reduction in both FY 2024 and FY 2025 for a total reduction of $43 billion over eight years.

The DSH Health Reform Methodology (DHRM) would separate states into non-low DSH states and low DSH states. Low DSH states will see a smaller percentage reduction. The largest percentage reductions will be imposed on

  • States with the lowest uninsured rates
  • States that do not target their DSH payments on hospitals with high volumes of Medicaid inpatients
  • States that do not target their DSH payments on hospitals with high volumes of uncompensated care

Each state DSH allotment reduction amount will be divided among three statutorily identified factors:

  • The Uninsured Percentage Factor (UPF), weighted 50 percent
  • The High Level of Uncompensated Care Factor (HUF), weighted 25 percent
  • High Volume of Medicaid Inpatients Factor (MHF), weighted 25 percent

Weighting the data will reduce the impact of the reduction for states with greater DSH needs while giving more weight to the more recent data.

In the estimated reductions for FY 2017, low DSH states have a total reduction of roughly $25 million while non-low DSH have a total reduction of roughly $1.975 billion.

Non-low DSH states have a total reduction of 17.24 percent in DSH federal funding. Massachusetts has the largest reduction of 31.45 percent.

The 17 low DSH states have a total reduction of 4.64 percent, with New Mexico seeing the smallest reduction of only 2.18 percent.

The national total DSH payments is lowered from just under $12 billion to just under $10 billion in the FY 2017 estimates.

The FY 2017 reductions per state can be viewed here.

CMS anticipates that

this proposed rule would not have a significant economic impact on a substantial number of small entities (including hospitals and providers) because states still have considerable flexibility to determine DSH state plan payment methodologies.

However, the reductions will have a direct effect of the ability on some states to maintain state-wide DSH payments at FY 2017 levels. Certain providers will also be affected, but CMS cannot estimate the impact.

CMS is accepting public comments on the proposed rule until 5pm on August 28.