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CMS Finalizes Methodology for Oct. 1 Medicaid DSH Cuts

The Centers for Medicare & Medicaid Services (CMS) released a final rule implementing the Affordable Care Act’s (ACA’s) Medicaid disproportionate share hospital (DSH) payment cuts beginning in fiscal year (FY) 2020.

The DSH health reform methodology (DHRM), proposed in 2017 before Congress delayed the DSH cuts to FY 2020, outlines how CMS will calculate states’ reductions. The DHRM encourages states to target remaining DSH payments to hospitals caring for the most low-income patients.

CMS incorporates five factors into the DHRM:

  • an adjustment factor to impose smaller reductions on low-DSH states (LDF);
  • an adjustment factor to impose larger reductions on states with low uninsured percentages (UPF);
  • an adjustment factor to impose larger reductions on states that do not target DSH funds to hospitals that treat a high volume of Medicaid inpatients (HMF);
  • an adjustment factor to impose larger reductions on states that do not target DSH funds on hospitals with high levels of uncompensated care (HUF); and
  • an adjustment factor to account for certain waiver states that used DSH dollars for coverage expansion (BNF).

CMS finalized its proposal to change the weights for the three targeting factors: UPF, HMF, and HUF. The UPF adjustment factor would receive a 50 percent weight, with HMF and HUF receiving 25 percent. In prior versions of the DHRM, the factors were equally weighted. CMS also finalized a state-specific cap to limit the annual DSH allotment reduction to 90 percent of a state’s original unreduced DSH allotment for that fiscal year.

America’s Essential Hospitals is analyzing the final rule and will release a detailed Action Update in the coming days.

On the Hill, the House of Representatives has approved a temporary extension of DSH funding through Nov. 21 in a continuing resolution (CR). The Senate is expected to vote on the CR this week. If passed, the CR will give Congress more time to reach a long-term agreement to stop these cuts for at least two years.

America’s Essential Hospitals continues to be a leader on this issue, building bipartisan support in Congress to stop these cuts. We will continue working with lawmakers to stop the cut from taking effect Nov. 22.

Contact Senior Director of Policy Erin O’Malley at or 202.585.0127 with questions.


About the Author

Rachel Schwartz is a former policy associate at America's Essential Hospitals.

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