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Red October: CMS Details Process for Billions in DSH Cuts

News  |  By Philip Betbeze  
   July 28, 2017

With Congressional delays in Medicaid disproportionate share funding cuts set to expire Sept. 30, CMS issues a proposed rule that details billions in reductions that will begin in 2018.

As the Senate tries repeatedly to repeal the Affordable Care Act, so far without success, CMS is moving ahead with detailing how cuts in disproportionate share funding will be administered under a political deal the hospital lobby agreed to in exchange for getting more people covered by health insurance under the ACA.

The first step of the DSH cuts, which were supposed to have been implemented in stair-step fashion beginning in 2014 and running through 2020, had been delayed by Congress until 2018 after hospitals successfully argued that uncompensated care costs weren’t declining as much as expected under the ACA.

The cuts will now begin in 2018 with $2 billion, with $1 billion in cuts added each year until 2024, when DSH payments will be cut by $8 billion. Another $8 billion in cuts is scheduled for 2025.  

Cuts will total $43 billion over the eight years.

The proposed rule lays out the DSH Health Reform Methodology (DHRM) that will be used to implement DSH funding reductions by state, in an attempt to target more heavily hospitals that experience the least financial impact from uncompensated care.

The DHRM will incorporate several sources of data to determine the amount by which each state’s DSH funding will be reduced for each year, in an attempt to account for a variety of factors that influence the financial impact of uncompensated care burdens in each state.

The methodology must, according to CMS “impose a smaller percentage reduction on low-DSH states.”

The largest reductions will be imposed on states with the lowest percentage of uninsured during the most recent year data is available, to states that do not target their DSH payments to hospitals with high volumes of Medicaid inpatients and to states that do not target DSH payments to hospitals with high levels of uncompensated care.

Data that will influence the DHRM will include United States Census Bureau Data and Medicaid DSH audit and reporting data submitted by the states.

The proposed rule is open for public comment until August 28.

Philip Betbeze is the senior leadership editor at HealthLeaders.

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