Expanded coverage thanks to the Affordable Care Act through the Medicaid program and through Health Insurance Marketplaces is expected to significantly reduce uncompensated care borne by hospitals and other providers. Therefore, the Affordable Care Act requires aggregate reductions to state Medicaid disproportionate share hospital (DSH) allotments annually from fiscal year (FY) 2014 through FY 2020. CMS released the final rule Friday September 13, 2013 on the methodology for determining the annual reductions to state-wide DSH allotments for all states for FY 2014 and 2015. In 2014, $500 million will be reduced in Medicaid DSH payments and $600 million will be reduced in 2015.
The Affordable Care Act also outlines the following factors that must be taken into account when developing the methodology:
(1) Low DSH states receive smaller reductions.
(2) States with lowest percentages of uninsured individuals receive larger reductions.
(3) States that do not target their DSH payments to hospitals with high volumes of Medicaid beneficiaries receive larger reductions.
(4) States that do not target their DSH payments on hospitals with high levels of uncompensated care receive larger reductions.
(5) States that have increased coverage under section 1115 demonstrations as of July 31, 2009, and adjusted their DSH allotments will have these adjustments taken into account.
From CMS: “A two-year methodology accommodates data refinement and methodology improvement before larger reductions begin in FY 2017. CMS will revisit the methodology and promulgate new rules to govern DSH reductions in FYs 2016 and beyond. The rule establishes separate DSH reduction pools for low-DSH states and non-low DSH states. The rule then creates a formula for distributing the reductions in each pool that gives one-third weight to the uninsured percentage factor. Another one-third is given to each of the two DSH payment targeting factors. The rule also contains a procedure for protecting allotments that support section 1115 demonstration coverage increases. The methodology encourages states to target Medicaid DSH payments to high Medicaid volume hospitals and hospitals with high levels of uncompensated care. For the years covered by this rule (FY 2014 and 2015), State decisions to expand Medicaid will not affect the amount of reduction in DSH allotments. We intend to revisit the methodology for DSH allotment reduction in future rulemaking.”