CMS Final Rule Cuts Medicaid DSH Payments for Some Safety-Net Hospitals in 2024: What it Means and How It Will Impact Healthcare

Overview of the Final Rule

The Centers for Medicare and Medicaid Services (CMS) have set in motion a final rule that will lead to some safety-net hospitals receiving lower Medicaid disproportionate share hospital (DSH) payments in the fiscal year 2024. This rule delineates how hospital-specific payment limits will be computed and clears up ambiguities within the DSH program to enhance administrative efficiency.

The final rule, published on February 20, will take effect on April 27, 2024, 60 days after its publication in the federal register. It includes modifications in the calculation of Medicaid shortfalls, limiting the inclusion of costs and payments for services provided to beneficiaries for whom Medicaid is the primary payer.

Who Will be Affected?

It is important to note that this rule doesn't apply universally. Safety-net hospitals serving the highest percentage of low-income patients will be exempt from this final rule. In essence, qualifying hospitals will be issued a hospital-specific limit that is the higher of that calculated under the new methodology or the methodology in effect on January 1, 2020.

Implications of the New Rule

The new rule sets restrictions on how Medicaid DSH payments are calculated and distributed. Hospitals will now only be able to account for patients with Medicaid as their primary payer. This regulation seeks to rein in Medicaid DSH overpayments, with 422 safety-net hospitals having received $1 billion in excess of their DSH limits in 2018.

According to data, New York spends the most on Medicaid DSH payments annually, followed by Texas, Pennsylvania, and Louisiana. Hospital groups have voiced their opposition against DSH cuts set out in the Affordable Care Act, arguing that the need for DSH funding is even greater now as hospital expenses per patient have significantly increased since the pandemic.

Responses and Reactions to the New Rule

The rule hasn't been without its detractors. Major hospital groups such as the American Hospital Association, the Federation of American Hospitals, and America's Essential Hospitals have offered critical evaluations of the rule. Their primary concern is the financial challenges that hospitals serving a large number of Medicaid and uninsured patients may face as a result of the payment cuts.

Looking Ahead

As the changes will take effect from April 27, 2024, hospitals have some time to adapt to the new rule. However, the impact on hospitals that serve a large number of low-income and uninsured patients could be significant. Therefore, it is crucial for hospitals to understand the changes in the payment methodology and plan strategically to mitigate the potential challenges.