DSH Alert Sept19

Disproportionate Share Hospital (DSH)
Medicaid DSH Allotment Reductions
Final Rule, 84 FR 50308

September 2019

Medicaid Disproportionate Share Hospital (DSH)

January 2019


The Centers for Medicare & Medicaid Services (CMS) is finalizing their proposed rule published on July 28, 2017 (82 FR 35155) related to the Medicaid hospital allotment reductions mandated by the Affordable Care Act (ACA). The final rule essentially finalizes the July 2017 rule as proposed, with the exception of adding paragraph §447.294(e)(14)(iv) to finalize a proposed state-specific cap that limits the annual DSH allotment reduction each year to 90 percent of its original unreduced DSH allotment for that fiscal year. This cap was discussed in the July 2017 proposed rule, but unintentionally omitted from the regulatory text of the proposed rule.

The allotment reductions, absent any congressional action, are set to begin in FY 2020 as follows:

  • $4,000,000,000 for FY 2020
  • $8,000,000,000 for FY 2021
  • $8,000,000,000 for FY 2022
  • $8,000,000,000 for FY 2023
  • $8,000,000,000 for FY 2024
  • $8,000,000,000 for FY 2025

Final DSH Health Reform Methodology (DHRM)

Calculate the low DSH factor

  • States will be separated into two groups: non-low DSH states and low DSH states. Low DSH states are subject to a lower DSH allotment reduction.
  • Low DSH states will receive the Low DSH Adjustment Factor (LDF) based on the proportion of the state group’s DSH allotments to total Medicaid expenditures. Detailed calculation methodology is included in the proposed rule.

Apply three primary factors to each state group (non-low DSH and low DSH states)

  1. Uninsured percentage factor (UPF) (50 percent weight)
    • State uninsurance rate ranking compared to all states in state group. The lowest rates receive the largest percentage reductions.
    • Weighted based on allotment totals so that larger and smaller states are given fair weight.
    • Data source is the United States Census Bureau Data. CMS is proposing to use the American Community Survey (ACS) for the census bureau data. This data will be used to determine the number of uninsured individuals.Myers and Stauffer’s Comments: Weighting of the UPF using allotments is not based on the size of the state but is only based on the size of the allotments.
  2. High Volume of Medicaid Inpatients Factor (HMF) (25 percent weight)
    • States that target a large percentage of DSH payments to federally DEEMED hospitals based on their Medicaid inpatient utilization rate (MIUR) would receive the lowest reduction amounts.
    • Data sources include the DSH examination and annual MIUR reporting.
      • DSH examination is used for the DSH payments.
      • DSH examination is used to obtain the individual MIUR for each hospital.
      • Annual 6/30 reporting of MIUR by states will be used for the MIUR, plus one standard deviation portion of the calculation.
        • This is the MIUR data states began submitting by June 30 of each year, as required under §447.294(d). The data is based on the state plan rate year and submitted by June 30 three years later (SPRY 2015 data was due to CMS by June 30, 2018).
        • High-volume Medicaid hospitals would be any that have a MIUR (as reported in the DSH examination reporting requirements — not the annual 6/30 reporting) exceeding one standard deviation above the mean MIUR for the entire state (from the 6/30 annual reporting — NOT the DSH exam).
        • HMF = a state’s DSH payments made to non-high volume Medicaid hospitals divided by total DSH payments made to non-high volume Medicaid hospitals for the state group. The higher the HMF, the higher the reduction for the state.
  3. High Level of Uncompensated Care Factor (HUF) (25 percent weight)
    • Largest percentage reductions on states that do not target DSH payments to hospitals with high levels of uncompensated care.
    • Data source is primarily the annual DSH examination. The is the DSH examination that Myers and Stauffer performs for several states. For FY 2020, CMS plans on using the SPRY 2015 DSH examination reports submitted to CMS by December 31, 2018.
      • Uncompensated care costs (UCC) are from the DSH examination.
      • DSH payments from DSH examination.
      • Total hospital costs from DSH examination.
      • Total Medicaid and uninsured costs from DSH examination (per CMS proposed rule, but not clear how this data would be used in the calculation).
        • 84 FR 50325 appears in error when there is a mention of using the Medicaid and uninsured costs in the HUF calculation. CMS explains later on the same page that they are using total hospital costs instead.
    • Hospitals exceeding mean ratio of UCC to total hospital costs within its state are considered high UCC hospitals. 
    • HUF = a state’s total hospital DSH payments made to non-high uncompensated care level hospitals divided by total of such payments for the entire state group. The higher the HUF, the higher the reduction for the state.
      • 84 FR 50316 seems to be in error when it states CMS will use each state’s “total payments” made, divided by “total payments” for the state group as opposed to the DSH payments. 84 FR 50326 appears correct when it states “DSH payments.”
    • The most significant change is the use of total hospital costs in the HUF, since the data is now available in the DSH exam.

Section 1115 budget neutrality factor (BNF)

  • DSH allotment diverted specifically in the budget neutrality calculation for section 1115 coverage expansion demonstrations approved as of July 31, 2009 continues to be excluded from the DSH allotment reduction for the HMF and HUF (NOT UPF).
  • UC pools and safety net care pools are NOT considered coverage expansion.
  • Average percentage reduction amount within the state group for diverted DSH allotment amounts NOT related to a coverage expansion in effect as of July 31, 2009, and for which the state does not have complete and/or relevant DSH payment data (allotment diverted to an 1115 coverage expansion in effect as of July 31, 2009, will not be impacted by the HUF or the HMF factors).

Other clarifications

  • The weighting of the factors per the proposed rule is finalized as proposed to provide greater emphasis on the UPF.
    • Reduced the impact for states with greater DSH need due to high uninsurance rates.
    • Provides greater weight to more recent data (UPF data is more recent than HUF and HMF data).
  • The final rule also caps the reduction to any given state at 90 percent of their unreduced allotment. This is a change made due to the higher allotment reductions (due to delays).
  • While the proposed rule did not speak directly to the Institute for Mental Disease (IMD) allotments, the final rule states the IMD DSH limits will be reduced under the final rule methodology. The IMD DSH limit will be calculated after reductions implemented under this final rule resulting in a corresponding reduction consistent with the overall reductions for the state.

Effective Date

The final allotment reduction methodology is effective with FY 2020 DSH allotments. CMS indicates they intend to make final FY 2020 reduction amounts available to states once finalized data necessary to calculate these reductions are available, which they anticipate will be on or before October 1, 2019.

Next Steps

Consider the impact to the state’s current year DSH payment calculations.

CMS did not include in the final rule an estimate or example calculation of the FY 2020 DSH allotments and related reductions. In the final rule, CMS noted that they are still gathering the final data elements needed to calculate the FY 2020 DSH allotments and reductions, but anticipate they will have all necessary data by October 1, 2019. Once all the data is gathered, they will begin the process of calculating the FY 2020 DSH allotments and reductions, and these allotments and reductions will be provided to states as soon as they are completed.
While CMS did not include any estimates or projections in the final rule, they indicated their intent to publish a separate “DHRM technical guide that provides information regarding the DHRM calculation and associated data sources in order to be fully transparent with states and stakeholders.” No timeline was given for the publication of this technical guide, nor was it indicated whether a tentative FY 2020 calculation or schedule would be included in this document.
At this time, our best source of data for the FY 2020 DSH allotment reductions is Table 3A-1 on page 85 of the March 2019 Report to Congress on Medicaid and CHIP published by the Medicaid and CHIP Payment and Access Commission (MACPAC). In the table, the MACPAC provides estimated FY 2020 DSH allotments and reductions using more recent data (SPRY 2014) than was used in CMS’s July 2017 proposed rule (SPRY 2013). Myers and Stauffer is available to assist with DSH allotment reduction projections for years after FY 2020, if needed.

Consider whether the 2015 DSH examination data being used by CMS is correct for your state.

Many states included two UCCs in their DSH reports because of the ongoing DSH litigation related to the inclusion of Medicare and TPL payments. Additionally, since CMS announced the withdrawal of FAQs 33 and 34 on December 31, 2018, many states may have issued addendums to SPRY 2015 DSH examinations to remove the Medicare and TPL payments from their UCCs. We recommend states that submitted addendums to the SPRY 2015 DSH examination report reach out to CMS to ensure they are using the addendum in their FY 2020 calculations in lieu of the final report with both UCCs. Some states did not submit addendums, and their final report may still include two UCC amounts. We recommend that you reach out to CMS to ensure they are using the higher UCC (without Medicare and TPL payments offset against cost) in their FY 2020 calculations.

Determine if your state properly submitted June 30 MIUR reporting for your 2015 DSH state plan year.

Based on discussions with some of our clients, the 6/30 annual MIUR data may have not been submitted by all states or may have not been thoroughly reviewed by states prior to submitting. There was confusion as to how to calculate the standard deviation above the statewide mean if they used DSH examination data (since the examination did not include all hospitals in the state), so many states used a combination of examination data and MIUR data they collected during DSH payment calculations or from cost reports.
The MIUR data is only used in calculating the high Medicaid factor (HMF). The HMF uses the value of one standard deviation above the mean MIUR to determine if a hospital is a “high-Medicaid” hospital or not. If a state did not report the data, CMS will use the highest standard deviation above the mean MIUR from states that did report.
Even though states may pay DSH based on deemed MIUR status, they are using current or historical data. The annual 6/30 reporting and DSH examination may show that a hospital is not deemed after updating to actual data for the period. This could lead to greater reductions in allotments. States intending to pay more to hospitals with deemed MIUR status should emphasize the data quality during the payment process. It is possible for states that only pay DSH hospitals with deemed MIUR status to have no reduction under the HMF factor. Myers and Stauffer is available to assist states with compiling MIUR data, if needed.

Consider modeling the HUF impact of including or excluding hospitals with no DSH payments in your 2015 DSH examination and current year DSH examinations.

Since not all hospitals are included in the DSH examination, the mean of UCC to total hospital cost may vary greatly by state. States that have only high UCC hospitals in their examination may have a very high UCC to total hospital cost ratio, and this may eliminate some high UCC hospitals as being classified as “high” for this factor. States that pay every hospital some amount of DSH or include zero-pay DSH hospitals in their DSH examination may show a much lower mean UCC to total hospital cost, thereby allowing more hospitals to meet the “high” UCC status. It may be beneficial to model a few scenarios to determine whether adding additional hospitals to the DSH examination would benefit the state’s HUF calculation. Myers and Stauffer is available to assist with modeling, if needed.

Consider further questions to CMS before they release final allotment reductions.

One question is how CMS will handle states that reported DSH overpayments in their reports for 2015. Are the overpayments being included as a DSH payment for the HUF and the HMF? Since the payments must be redistributed, it would seem that CMS should not include them as a payment but it may benefit a state to include them if they were overpayments to high Medicaid or high uncompensated hospitals. Again, this is something Myers and Stauffer can assist in modeling, if necessary.

Other questions may be related to making sure CMS is using the correct amounts from your 2015 report or addendum as previously discussed, above.