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Comment Letter: Proposed Medicaid Disproportionate Share Hospital Third-Party Payer Rule

In a letter to Centers for Medicare & Medicaid Services (CMS) Administrator Chiquita Brooks-LaSure, MACPAC commented on CMS’s proposed Medicaid disproportionate share hospital (DSH) third-party payer rule. The proposed rule codifies the provisions of Section 203 of the Consolidated Appropriations Act, 2021 (CAA, P.L. 116-260), which made changes to how uncompensated care is calculated for Medicaid beneficiaries. The proposed rule also makes changes to how the public is notified of DSH and State Children’s Health Insurance Program (CHIP) allotments, streamlines CMS’s process for recouping DSH payments, and makes changes to how DSH allotment reductions are calculated.

The Commission supports many of these regulatory changes, and recommends that CMS make additional technical changes to support the implementation of the proposed DSH provisions. In the letter, the Commission recommended that CMS should modify Medicaid DSH audits to separately identify costs and payments for individuals with third-party coverage from patients who use Medicaid as their primary payer among excepted hospitals. This would help policymakers and CMS better understand the extent to which DSH payments are targeted to hospitals that disproportionately serve Medicaid-only or the uninsured population among all hospitals and excepted hospitals.

In addition, the Commission recommended that CMS use hospital-specific supplemental payment data in determining how much to reduce DSH funding that is diverted through a Section 1115 demonstration when allotments are reduced starting FY 2024. The Commission is concerned that if CMS uses averages to calculate this DSH allotment reduction factor for states with DSH-financed Section 1115 demonstrations, this could discourage these states from targeting DSH payment to hospitals that need them most.

The Commission supports CMS’s proposed process to expedite the recoupment of DSH overpayments to help ensure that DSH payments do not exceed a hospital’s specific limit. However, the Commission called for CMS to require states to submit hospital-level data to increase payment transparency, and help policymakers evaluate whether DSH payments meet their statutory intent of supporting hospitals that serve a high share of the Medicaid and uninsured population.

Finally, the Commission recommended that CMS should post allotments by April 1 of each year to ensure timely availability of these data for states and stakeholders. Since most state fiscal years begin on July 1, providing data by April 1 provides time for states to incorporate the allotment amounts into their state budgets.