Medicaid Disproportionate Share Hospital (DSH) Payments

Federal law requires that state Medicaid programs make Disproportionate Share Hospital (DSH) payments to qualifying hospitals that serve a large number of Medicaid and uninsured individuals.

Federal law establishes an annual DSH allotment for each state that limits Federal Financial Participation (FFP) for total statewide DSH payments made to hospitals. Federal law also limits FFP for DSH payments through the hospital-specific DSH limit. Under the hospital-specific DSH limit, FFP is not available for state DSH payments that are more than the hospital's eligible uncompensated care cost, which is the cost of providing inpatient hospital and outpatient hospital services to Medicaid patients and the uninsured, minus payments received by the hospital on or on the behalf of those patients.

DSH Audit and Reporting Requirements

For states to receive FFP for DSH payments, federal law requires states to submit an independent certified audit and an annual report to the Secretary describing DSH payments made to each DSH hospital.

The report must identify each disproportionate share hospital that got a DSH payment adjustment, and provide any other information the Secretary needs to ensure the appropriateness of the payment amount. The annual certified independent audit includes specific verifications to make sure all DSH payments are appropriate.

Final Rule on DSH Audit and Reporting Requirements

On December 19, 2008, CMS published a final rule to implement federal law, specifying the elements for the required DSH report and the verifications required for the audit. CMS also developed additional guidance, including the General DSH Audit and Reporting Protocol and the DSH Report Format to help states meet statutory and regulatory requirements.

Final DSH Rule: Treatment of Third Party Payers in Calculating Uncompensated Care Costs

On March 30, 2017, CMS issued a final rule regarding Medicaid Disproportionate Share Hospital payments. This rule clarifies federal requirements regarding the treatment of third party payers in determining the hospital-specific Medicaid DSH payment limit, which is set by statute as a hospital’s “uncompensated costs” incurred in providing hospital services to Medicaid and uninsured patients.

The final rule makes clearer our existing policy that uncompensated costs include only those costs for Medicaid eligible individuals that remain after accounting for all payments received by or on behalf of Medicaid eligible individuals, including Medicare and other third party payments. This is consistent with the statutory requirements governing Medicaid DSH and applicable limits.

Notice of Proposed Rulemaking: State Disproportionate Share Hospital Allotment Reductions

On July 27, 2017, CMS issued a notice of proposed rulemaking (NPRM) regarding Medicaid Disproportionate Share Hospital allotment reductions. This NPRM proposes a methodology to implement the annual reductions to state Medicaid DSH allotments for FY 2018 through FY 2025 as required by the Affordable Care Act. The proposed methodology relies on five factors identified in statute. Taking these factors into account for each state, the proposed methodology will generate a state-specific DSH allotment reduction amount for each fiscal year.

State-specific Annual DSH Reports and Independent Certified Audits

State-specific annual DSH reports are available in the "Annual DSH Reports" section of this webpage. The reports are posted as submitted by states based on their availability and are arranged alphabetically by state under the corresponding State Plan RateYear (SPRY) heading.

Due to the size of the files and issues associated with electronic formatting, state-specific independent certified audits will be available only upon request. Interested parties should contact Ella Winkler (Ella.Winkler@cms.hhs.gov) to request copies. In order to facilitate requests, the subject line should read "DSH Independent Certified Audit Request". In the body of the email, please provide specifics regarding the state and SPRY that you are requesting. Please be advised that the provision of the audits is subject to availability and does not constitute approval of their contents.

Annual DSH Reports