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CMS Proposes to Revise Medicare DSH Calculation

In a new rule, the Centers for Medicare & Medicaid Services (CMS) proposes to change the types of Medicaid days included in the calculation of Medicare disproportionate share hospital (DSH) payments.

CMS proposes to change how it defines Medicaid-eligible patients for inclusion in the Medicaid fraction of a hospital’s disproportionate patient percentage (DPP), which is a hospital’s number of Medicaid-eligible days (for patients not also entitled to Medicare Part A) over total patient days. The DPP is used to determine Medicare DSH eligibility and calculate a hospital’s traditional Medicare DSH payment, with the remainder of DSH payments allocated based on uncompensated care costs. If finalized, the changes would take effect Oct. 1, 2023.

Specifically, CMS proposes to limit the types of Medicaid Section 1115 waiver days that can be included in the Medicaid fraction. Historically, CMS has deemed patients eligible for Medicaid if the patient is eligible for inpatient hospital services under an approved state Medicaid plan or a Section 1115 waiver. CMS’ interpretation of which Section 1115 waivers are counted in the Medicaid fraction has changed over time, but, most recently, CMS has included waiver days for patients receiving premium assistance and for patients receiving inpatient hospital care paid for through a Section 1115 waiver–funded uncompensated care pool.

Under the new proposal, CMS would restrict Section 1115 waiver days to include those for which:

  • Patients receive health insurance through a Section 1115 demonstration itself or by purchasing health insurance with premium assistance provided by a Section 1115 demonstration.
  • State expenditures to provide the insurance or premium assistance may be matched with federal Medicaid funds.

For Section 1115 waiver days to be included in the Medicaid fraction, the insurance provided through the waiver must cover inpatient hospital services, or the premium assistance must cover 100 percent of the premium to buy insurance to cover inpatient hospital services. CMS now proposes to amend the regulations to exclude explicitly from the Medicaid fraction patient days for which hospitals received a payment from a Section 1115–based uncompensated care pool.

CMS previously introduced a similar proposal twice, in the fiscal year 2022 and 2023 Inpatient Prospective Payment System proposed rules, before withdrawing the proposal due to opposition from stakeholders. America’s Essential Hospitals commented in opposition to the exclusion of uncompensated care pool days.

America’s Essential Hospitals is analyzing the proposed rule and will be commenting on the rule. Comments are due to CMS on May 1.

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


About the Author

Shahid Zaman is a senior policy analyst at America's Essential Hospitals.

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