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April 3, 2017

CMS issues final rule for DSH payments

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CMS on Thursday issued a final rule that clarifies how the agency considers third-party payments when calculating Medicaid disproportionate share hospital (DSH) payments to help cover uncompensated care costs.

CMS reimburses hospitals for the difference between the total cost of outpatient and inpatient care for Medicaid beneficiaries and total Medicaid payments hospitals receive.

The agency in the final rule clarified that "uncompensated care costs include only those costs for Medicaid-eligible individuals that remain" after accounting for third-party payments made by or on behalf of beneficiaries, including payments from Medicare and private insurers. 

The changes are scheduled to go into effect in 60 days from April 3.

Potential ramifications

CMS' initial proposal on the matter received pushback from hospitals—which said the rule could lower payments for uncompensated care—and state Medicaid agencies, which said it could dissuade hospitals from treating larger portions of low-income and uninsured patients.

According to Modern Healthcare, the change could lower uncompensated care payments for Medicaid beneficiaries.

For instance, when the third party payment was not factored into the calculation, CMS would calculate total uncompensated care costs to a hospital as $1,800 if the hospital treated two Medicaid beneficiaries at a cost of $2,000 and received a third-party payment of $500 for each beneficiary and a $100 Medicaid payment for each individual. But under the change, CMS would calculate the uncompensated care cost for the hospital in the same situation to be $800, according to Modern Healthcare.


Tom Nickels, executive vice president of the American Hospital Association (AHA), in a statement said AHA is "deeply disappointed" in CMS' decision to finalize the rule. Nickels said CMS "ignore[d] requests to apply this change in policy" prospectively "to give states and hospitals sufficient time to make needed adjustments to ensure compliance" (Diamond, "Pulse," Politico, 3/31; AHA News Now, 3/30; Dickson, Modern Healthcare, 3/31).

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