LegiStorm

Summary:

The Medicaid statute requires states to make disproportionate share hospital (DSH) payments to hospitals treating large numbers of low-income patients. This provision is intended to recognize the disadvantaged financial situation of those hospitals because low-income patients are more likely to be uninsured or Medicaid enrollees. Hospitals often do not receive payment for services rendered to uninsured patients, and Medicaid provider payment rates are generally lower than the rates paid by Medicare and private insurance. As with most Medicaid expenditures, the federal government reimburses states for a portion of their Medicaid DSH expenditures based on each state's federal medical assistance percentage (FMAP). While most federal Medicaid funding is provided on an open-ended basis, federal Medicaid DSH funding is capped. Each state receives an annual DSH allotment, which is the maximum amount of federal matching funds that each state is permitted to claim for Medicaid DSH payments. In FY2019, preliminary federal DSH allotments totaled $12.6 billion. Built on the premise that the Patient Protection and Affordable Care Act (ACA; P.L. 111-148, as amended) insurance coverage provisions (including the ACA Medicaid expansion) would reduce the number of uninsured individuals, the ACA included a provision directing the Secretary of the Department of Health and Human Services (HHS) to make aggregate reductions in federal Medicaid DSH allotments for each year from FY2014 to FY2020. Since the initial enactment of the ACA, a number of laws have amended the DSH reductions. Under current law, the Medicaid DSH reductions are to be in effect for May 23, 2020, through FY2025. Although states must follow some federal requirements in defining DSH hospitals and calculating DSH payments, for the most part, states are provided significant flexibility. One way the federal government restricts states' Medicaid DSH payments is that the federal statute limits the amount of DSH payments to institutions for mental disease and other mental health facilities. Since Medicaid DSH allotments were implemented in FY1993, total Medicaid DSH expenditures (i.e., including federal and state expenditures) have remained relatively stable. Over this same period of time, total Medicaid DSH expenditures as a percentage of total Medicaid medical assistance expenditures (i.e., including both federal and state expenditures but excluding expenditures for administrative activities) dropped from 13% in FY1993 to 3% in FY2018. The future of Medicaid DSH payments is uncertain, because Congress may decide to change the DSH reductions again or amend the distribution of federal Medicaid DSH funding among states. Congress could amend the Medicaid DSH reductions in the same way the reductions have been amended in the past, which includes eliminating the reductions for FY2014 through FY2019, changing the reduction amounts, and extending the reductions through FY2025. In March 2019, the Medicaid and CHIP Payment and Access Commission (MACPAC) made a recommendation to Congress for restructuring the methodology for allocating Medicaid DSH reductions to states. In June 2019, the House Energy and Commerce Committee's Subcommittee on Health held a hearing on a number of health care bills, including the Patient Access Protection Act (H.R. 3022), that would repeal the Medicaid DSH reductions. In 2019, there was some discussion of amending the allocation of Medicaid DSH allotment funding among the states. In 2019, the State Accountability, Flexibility, and Equity (SAFE) for Hospitals Act (S. 18 and H.R. 3613) was introduced, which would change the methodology for allocating federal Medicaid DSH funding among the states, among other things. In addition, it was reported in 2019 that Senate Finance Chairman Grassley was considering options to amend the distribution of federal Medicaid DSH funding among states.