CMS releases final rule on Medicaid DSH calculation: 4 things to know

CMS issued a final rule March 30 addressing how Medicare and other third-party payments are treated when calculating hospitals' Medicaid Disproportionate Share Hospital payments.

Here are four things to know about the final rule.

1. Federal law requires state Medicaid programs to make DSH payments to hospitals that serve large Medicaid and uninsured populations. Under the hospital-specific DSH limit, federal financial participation is limited to a hospital's uncompensated care costs.

2. Under the final rule, uncompensated care costs include only those costs for Medicaid-eligible individuals that remain after accounting for payments made to hospitals by or on behalf of Medicaid-eligible individuals, including Medicare and other third-party payments. "As a result, the hospital-specific limit calculation will reflect only the costs for Medicaid eligible individuals for which the hospital has not received payment from any source," according to the final rule.

3. CMS said the final rule clarifies existing policy regarding how hospital DSH payments are calculated. However, the American Hospital Association disagrees. After CMS released the proposed rule in September, the AHA sent a letter to CMS arguing the rule is more than a clarification and actually establishes new policy. The AHA urged CMS to withdraw the proposed rule.

4. CMS issued its original policy in sub-regulatory guidance in August. The agency released the final rule a few weeks after a federal court barred CMS from using sub-regulatory guidance to calculate Medicaid DSH payments for New Hampshire hospitals.

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