CMS finalizes DSH payment cuts for some safety-net hospitals: 8 things to know

CMS will cut Medicaid disproportionate share hospital payments for some safety-net hospitals in fiscal year 2024, which began Oct. 1, 2023, according to a final rule published Feb. 20.

The rule will result in an $8 billion reduction in DSH payments annually from fiscal year 2024 to 2027, culminating in a $32 billion overall cut over the four-year period, according to CMS. 

Eight things to know:

1. Following a congressional directive from the Consolidated Appropriations Act of 2021, the final rule outlines how hospital-specific payment limits will be calculated and clears up ambiguities within the DSH program to improve administrative efficiency, according to Bloomberg.

2. Hospitals previously calculated Medicaid shortfalls (the difference between costs and payments for Medicaid-eligible patients) by projecting yearly treatment costs for Medicaid patients alone as well as those with other types of coverage, including Medicare or commercial coverage.  

3. Under the new rule, hospitals can only include costs and payments for services provided to beneficiaries for whom Medicaid is the primary payer for such services. The limit excludes costs and payments for services provided to Medicaid beneficiaries with other sources of coverage.

4. The final rule does not apply to safety-net hospitals serving the highest percentage of low-income patients. Hospitals in and above the 97th percentile of inpatient days comprising  patients who are entitled to Medicare Part A benefits and Supplemental Security Income benefits are exempt. 

5. The exception provides qualifying hospitals with a hospital-specific limit that is the higher of that calculated under the methodology in which costs and payments for Medicaid patients are counted only for beneficiaries for whom Medicaid is the primary payer, or the methodology in effect on Jan. 1, 2020. 

6. New York ($3.9 billion) spends the most on Medicaid DSH payments annually, followed by Texas, Pennsylvania and Louisiana, which pay $1.2 billion, according to data published in November by KFF. 

7. Hospital groups have pushed back against DSH cuts set out in the Affordable Care Act, arguing that the need for DSH funding is even greater now as hospital expenses per patient have increased significantly since the pandemic. 

8. The American Hospital Association said it is concerned about the effect that DSH cuts will have on hospital finances. "This policy was based in-part on the flawed notion that hospitals receive the entirety of a Medicare or Medicaid payment rate when in reality most state Medicaid programs pay less than that," Ben Finder, AHA's vice president of coverage policy, said in a statement provided to Becker's. "That means that many hospitals are not compensated fully for care provided to patients dually eligible for Medicare and Medicaid and this policy would reduce their ability to offset those cuts and potentially create additional financial strain at a time when many hospitals are already struggling."

These changes will take effect April 27, 60 days after the final rule's publication in the federal register.

Click here for more details on the final rule.

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