The Centers for Medicare & Medicaid Services (CMS) has published the final rule for calculating uncompensated care costs to determine hospital-specific disproportionate share hospital (DSH) payment limits in annual DSH audits.

This final rule codifies the agency’s interpretation — outlined in a January 2010 Frequently Asked Questions (FAQ) — that in calculating the hospital-specific limit, the total costs of care for Medicaid inpatient and outpatient services must account for all third-party payments received, including Medicare and private health insurance coverage for those who are dually eligible.

There have been several lawsuits filed to prevent enforcement of the policies contained in the FAQs. To date, two judges have blocked CMS from enforcing the policy, and a total of seven cases have been filed. One of the allegations in these lawsuits is a procedural challenge that CMS failed to go through notice and comment rulemaking required to implement this significant change in policy. In addition, many of these lawsuits further allege that CMS’ interpretation is inconsistent with the language of the DSH statute and is impermissible regardless of whether issued as FAQs or regulations.

The final rule was published in the Federal Register on April 3 and provisions are effective beginning June 2. America’s Essential Hospitals’ staff will provide additional detail about the litigation and analysis of the potential impact of the rule in an upcoming Action Update.

Contact Director of Policy Erin O’Malley at eomalley@essentialhospitals.org or 202.585.0127 with questions.