Health Reform WK-EDGE HHS issues final rule on Medicaid Disproportionate Share Hospital allotment reductions
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Thursday, September 26, 2019

HHS issues final rule on Medicaid Disproportionate Share Hospital allotment reductions

By Nicole D. Prysby, J.D.

The final rule largely tracks the July 2017 proposal and sets forth the methodology to generate a state-specific DSH allotment reduction amount for each fiscal year from FY 2020 through FY 2025.

Methodology for implementing required reductions to state disproportionate share hospital (DSH) allotments was released by HHS via final rule. The reductions were initially set to be effective beginning in FY 2014, but were delayed to FY 2020. The final rule establishes a methodology that will generate a state-specific DSH allotment reduction amount for each fiscal year. The total of all DSH allotment reduction amounts in a specific fiscal year will equal the aggregate annual reduction amount required for that year (Final rule, 84 FR 50308, September 25, 2019).

In anticipation of lower uninsured rates and lower levels of hospital uncompensated care, the Patient Protection and Affordable Care Act (ACA) set forth aggregate reductions to state DSH allotments annually from FY 2014 through FY 2020. Subsequent legislation delayed the start of these reductions, modified the reduction amounts, and extended the fiscal years subject to reductions. Under current law, annual allotment reductions start in FY 2020 and run through FY 2025. Those reductions are $4,000,000,000 for FY 2020 and $8,000,000,000 for each year from FY 2021 through FY 2025. In July 2017, HHS published a proposed rule with allotment reduction methodology (DSH Health Reform Methodology or DHRM). This final rule largely tracks the proposal, with a few minor exceptions.

The DHRM imposes a smaller percentage reduction on low DSH states and a larger percentage reduction on states that have the lowest percentages of uninsured individuals and states that do not target their DSH payments on hospitals with high volumes of Medicaid inpatients or high levels of uncompensated care. The DHRM accomplishes this through a number of steps, which include separating states into two groups, non-low DSH states and low DSH states; proportionately allocating aggregate DSH funding reductions to each of these two state groups; applying a low DSH adjustment percentage to adjust the non-low DSH and low DSH state groups’ DSH funding reduction amount; and dividing 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).

The rule assigns a 50 percent weight to the UPF and a 50 percent combined weight for the two DSH payment targeting factors (a 25 percent weight for the HUF, and a 25 percent weight for the HMF). For each state group, state-specific DSH allotment reduction amounts relating to the UPF, the HUF, and the HMF will be identified. No state will receive a reduction in excess of 90 percent of its preliminary unreduced DSH allotment for the respective fiscal year.

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