CMS issues proposed rule on Medicaid DSH payments

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The Centers for Medicare and Medicaid (CMS) published a proposed rule on Medicaid disproportionate share hospital (DSH) payment regarding the treatment of third party payers in calculating uncompensated care in the Aug. 15 Federal Register.

Statutory requirements governing the calculation of Medicaid DSH expressly state that uncompensated care costs must be calculated net of Medicaid payments. However, the proposed rule redefines uncompensated care costs for the third-party payment when calculating an individual hospital’s DSH payment limit. The new definition for uncompensated care is:

  • Net of third-party payments, including but not limited to payments by Medicare and private insurance
  • Capturing the total burden on the hospital of treating Medicaid-eligible patients prior to payment by Medicaid
  • Being calculated in the aggregate and not by estimating the cost of individual payments

CMS, in issuing this proposed rule, appears to be responding to several court cases challenging its interpretation of how Medicaid and other third-party payments are treated in terms of calculating a hospital’s specific limit for the purposes of Medicaid DSH payments. The pending court cases have challenged CMS’s position on the treatment of third-party payments in calculating uncompensated care and violating the Administrative Procedures Act by providing state Medicaid agencies and their contracted Medicaid DSH auditors with only informal guidance through the FAQs without going through public notice and comment.

Comments on the proposed rule are due by Sept. 14.