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Federal Officials Finalize Rule on Disproportionate Share Hospital Payments

By Rebecca Adams, CQ HealthBeat Associate Editor

September 13, 2013 -- The final rule reducing Medicaid disproportionate share hospital (DSH) payments that was released late last week looks much like the proposed version.

The regulation cuts $500 million per year in fiscal 2014 and $600 million in fiscal 2015 allotments.

Hospitals had pushed for a delay in the cuts, but the Centers for Medicare and Medicaid Services (CMS) said no.

In the health care law (PL 111-148, PL 111-152), Congress had cut the DSH payments because lawmakers assumed that hospitals would get more revenue because the law expanded coverage through new marketplaces and Medicaid. But the Supreme Court said states would not lose all their Medicaid dollars for failing to broaden the eligibility for the program. The rejection of the Medicaid expansion in many states has made things more financially difficult for hospitals.

Hospitals had argued that it doesn't make sense to cut their Medicaid DSH payments, which help compensate facilities for the fact that they treat low-income people, when they will not get as much funding as they would have gotten if every state had expanded Medicaid.

"HHS has no flexibility to institute a delay of the DSH allotment reductions without congressional action," the final rule responded.

CMS officials did say, though, that they expect to revisit the methodology in future years, which many commenters had requested. The health care law calls for DSH cuts from 2014 through 2020, but the rule only finalizes the reductions for the first two years of that period. The range of cuts outlined in the law vary by year, peaking in 2019 at $5.6 billion for that year.

The rule said that another regulation on DSH payments would be finalized later. That would finalize a proposed rule issued on Jan. 18, 2012, titled, "Medicaid Disproportionate Share Hospital Payments—Uninsured Definition." That proposal would define ''individuals who have no health insurance (or other source of third party coverage) for the services furnished during the year'' in order to calculate hospital-specific DSH limits on a service-specific basis rather than on an individual basis.

The final rule follows the requirements laid out in the health care law. The statute's requirements include provisions saying that states get cut more if they have the lowest percentages of uninsured people or if they don't target their DSH payments to hospitals with many Medicaid beneficiaries or to hospitals with high levels of uncompensated care.

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