Health Reform WK-EDGE CMS proposes updated method to calculate ACA-mandated Medicaid allotment reductions
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Tuesday, August 8, 2017

CMS proposes updated method to calculate ACA-mandated Medicaid allotment reductions

By Leah S. Poniatowski, J.D.

In light of data now available to CMS, the agency has proposed to amend the Disproportionate Share Hospital (DSH) Health Reform Methodology (DHRM) in accordance with the Patient Protection and Affordable Care Act’s amendment to the Social Security Act and is seeking comments on alternative methodologies by August 28, 2017 (Proposed rule, 82 FR 35155, July 28, 2017).

Background. Section 1923(f) of the Social Security Act was amended by the ACA (P.L. 111-148) in order to account for an expected reduction of uninsured rates and uncompensated hospital costs. Specifically, Section 2551 of the ACA established that state Medicaid DSH allotments would be reduced annually in the aggregate in consideration of certain statutory factors. In 2013, CMS published a Final rule that finalized a methodology only for fiscal years (FY) 2014 and 2015 in anticipation of re-evaluation following implementation of the ACA (see CMS lays out methodology for Medicaid DSH reductions in 2014 and 2015, September 16, 2013). The Proposed rule reflects CMS’ re-evaluation of the rule based on more recent and improved data.

Proposed rule. As noted, the rule proposes a DHRM that accounts for relevant data that was unavailable to CMS during prior rulemaking for DSH allotment reductions originally set to take place for FY 2014 and FY 2015. The proposed DHRM accomplishes this through the following steps: (1) separate states into two overall groups, non-low DSH states and low DSH states, to give effect to the statutory low-DSH criterion; (2) proportionately allocate aggregate DSH funding reductions to each of these two state groups based on each state group’s proportion of the total national unreduced DSH allotment amount; (3) apply a low DSH adjustment percentage to adjust the non-low DSH and low DSH state groups’ DSH funding reduction amount; (4) divide each state group’s DSH allotment reduction amount among three statutorily identified factors, the Uninsured Percentage Factor (UPF), the High Level of Uncompensated Care Factor (HUF), and the High Volume of Medicaid Inpatients Factor (HMF); (5) limit the reduction to be applied to each state’s total unreduced DSH allotment to 90 percent of its original unreduced allotment; (6) for each state group, determine state-specific DSH allotment reduction amounts relating to the UPF, HUF, and HMF; (7) apply a section 1115 Budget Neutrality Factor for each qualifying state; (8) identify the state-specific DSH allotment reduction amount; and (9) subtract each state’s state-specific DSH allotment reduction amount from each state’s unreduced DSH allotment to determine the state’s available DSH allotment for the applicable year.

The DHRM is designed to determine DSH reductions in an equitable manner and lessen the impact on states that have targeted DSH payments to hospitals that have high volumes of Medicaid inpatients and to hospitals that have high levels of uncompensated care, respectively, while incentivizing payments.

CMS also proposes to amend 42 C.F.R. Sec. 447.294 by: (1) removing the language to specific fiscal years vis-à-vis calculation of the state annual DSH allotment reductions; (2) addition of a definition of "Total hospital cost"; (3) clarification of state data submission requirements; (4) clarification of the timeframe of total Medicaid service expenditures used for calculating the Low DSH adjustment factor; and (5) adjusting how the statutorily-defined factors are weighed.

FederalRegisterIssuances: ProposedRules NewsFeed AgencyNews MedicaidNews FedTracker HealthCare

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