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CMS Publishes Section 203 Proposed Rule

Julie Kozminski
February 24, 2023

The Centers for Medicare & Medicaid Services (CMS) on Feb. 24, 2023, published the proposed rule to implement Section 203 of the Consolidated Appropriations Act of 2021 (CAA 2021). Section 203 alters the rules for considering the costs and payments associated with Medicare and commercial dually eligible patients when calculating a hospital’s Medicaid disproportionate share hospital (DSH) uncompensated care limit.

The CAA 2021 requires hospitals to include only the costs and payments for patients for whom Medicaid is the primary payer or who are uninsured. Costs for hospital services to patients with other primary coverage, such as commercial insurance or Medicare, who have Medicaid as a secondary payer will not be counted towards a hospital’s DSH cap.

The CAA 2021 made an exception for hospitals that are:

  • Above the 97th percentile of hospitals for Medicare supplemental security income (SSI) inpatient days, based on the percentage of a hospital’s total inpatient days for Medicare SSI patients.
  • At or above the 97th percentile for all hospitals with respect to the number of Medicare SSI days.

The proposed rule:

  • Defines “97th percentile hospital.”
  • States CMS will publish the list of 97th percentile hospitals annually.
  • Identifies the sources of data to calculate the 97th percentile to include the Healthcare Cost Report Information System, the Medicare Provider Analysis Review files, and SSI eligibility data from the Social Security Administration.
  • Describes how CMS will calculate the percentage of Medicare SSI inpatient days and the number of Medicare SSI days.
  • States when CMS will collect the data and the timeline to correct errors in the calculation.

Further, the regulations incorporate statutory changes in the CAA 2021 to update the methodology for calculating Medicaid shortfall.

Finally, CMS proposes to eliminate the requirement to publish annual DSH allotments in the Federal Register and instead post them in the Medicaid Budget and Expenditure System and at

Contact Director of Policy Rob Nelb, MPH, at or 202.585.0127 with questions.

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