CMS outlines how it will cut $43B from Medicaid DSH payments

A proposed rule from CMS offered greater detail on the methodology for implementing the Affordable Care Act’s $43 billion in cuts to Medicaid Disproportionate Share Hospital (DSH) payments between 2018 and 2025.

The reductions had been pushed back from the ACA’s original start date of fiscal year (FY) 2014. Now moving forward with the cuts, CMS has proposed aggregate reductions to state allotments beginning with a $2 billion reduction in 2018. Each year, the cuts would be increased by $1 billion, leveling off at an $8 billion cut in both 2024 and 2025.

Those allotments would be based on some new data sources under the proposed rule, forming what the agency called the DSH Health Reform Methodology (DHRM). The DHRM would then generate a state-specific reduction which “would be applied to the unreduced DSH allotment amount for its respective state.” How a state manages those reductions, the rule said, is largely up to them.

“Given that states would retain the same flexibility to design DSH payment methodologies under the state plan and that individual hospital-specific DSH payment limits would not be affected, we cannot predict whether and how states would exercise their flexibility in setting DSH payments to account for their reduced DSH allotment and how this would affect individual providers or specific groups of providers,” the rule said.

The rule said CMS would aim to incentivize states to target payments to hospitals most in need of the money, based on serving a larger amount of Medicaid beneficiaries or having a higher level of uncompensated care.

For illustration purposes, the proposed rule provided estimates of how big overall reductions could be in each state based on their uninsured and Medicaid populations, the level of uncompensated care at their hospitals and their unreduced DSH allotments for the current fiscal year. The biggest single-state reduction under this methodology would be in New York, which would lose a cumulative $329 million in DSH payments based on 2017 numbers. The biggest cut by percentage would be Vermont, which under this estimate would receive 28 percent less in DSH allotments.

As required by law, the methodology would take a smaller cut from states which have lower DSH allotments relative to their total Medicaid expenditures. The smallest reduction by dollar amount would be Wyoming, which would lose only $17,000 in DSH payments based on its 2017 allotment.

Comments on the proposed rule will be accepted through Aug. 28.