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Updated November 14, 2019
Medicaid Disproportionate Share Hospital (DSH) Reductions
The Medicaid statute requires states to make
 the American Taxpayer Relief Act of 2012 (P.L. 112-
disproportionate share hospital (DSH) payments to
240),
hospitals treating large numbers of low-income patients.
This provision is intended to recognize the disadvantaged
 the Bipartisan Budget Act of 2013 (P.L. 113-67),
financial situation of those hospitals because low-income
patients are more likely to be uninsured or Medicaid
 the Protecting Access to Medicare Act of 2014 (P.L.
enrollees. Hospitals often do not receive payment for
113-93),
services rendered to uninsured patients, and Medicaid
provider payment rates are generally lower than the rates
 the Medicare Access and CHIP Reauthorization Act of
paid by Medicare and private insurance. (See CRS Report
2015 (P.L. 114-10),
R42865, Medicaid Disproportionate Share Hospital
Payments
.)
 the Bipartisan Budget Act of 2018 (BBA 2018; P.L.
115-123), and
Whereas most federal Medicaid funding is provided on an
open-ended basis, federal Medicaid DSH funding is capped.
 Continuing Appropriations Act, 2020, and Health
Each state receives an annual DSH allotment, which is the
Extenders Act of 2019 (P.L. 116-59).
maximum amount of federal matching funds that each state
is permitted to claim for Medicaid DSH payments. In
Under current law, the aggregate reductions to the Medicaid
FY2019, federal DSH allotments totaled $12.6 billion.
DSH allotments equal $4.0 billion for the period beginning
November 22, 2019, and ending September 30, 2020, and
DSH Allotment Reduction Amounts
$8.0 billion for each year from FY2021 through FY2025.
The Patient Protection and Affordable Care Act (ACA; P.L.
111-148, as amended) has reduced the number of uninsured
Figure 1 shows estimates of aggregate DSH allotments for
individuals in the United States through the health
FY2012 through FY2028 before the ACA reductions, with
insurance coverage provisions (including the ACA
the ACA reductions, and under current law. The ACA
Medicaid expansion). Built on the premise that with fewer
reductions totaled $18.1 billion, and under current law the
uninsured individuals there should be less need for
DSH allotment reductions total $44.0 billion.
Medicaid DSH payments, the ACA included a provision
directing the Secretary of the Department of Health and
Figure 1. Total DSH Allotments Before the
Human Services (HHS) to make aggregate reductions in
Reductions, with the ACA Reductions, and Under
Medicaid DSH allotments equal to $500 million in FY2014,
Current Law
$600 million in FY2015, $600 million in FY2016, $1.8
billion in FY2017, $5.0 billion in FY2018, $5.6 billion in
FY2019, and $4.0 billion in FY2020.
Despite the assumption that decreasing the number of
uninsured individuals would reduce the need for Medicaid
DSH payments, the ACA was written so that, after the
specific reductions for FY2014 through FY2020, DSH
allotments would have returned to the amounts that states
would have received without the enactment of the ACA. In
other words, in FY2021, states’ DSH allotments would
have rebounded to their pre-ACA-reduced levels, with
annual inflation adjustments for FY2014 to FY2021.
Since the ACA, a number of laws have amended the ACA

Medicaid DSH reductions by eliminating the reductions for
Source: CRS calculation.
FY2014 through FY2019, changing the reduction amounts,
Notes: The consumer price index for all urban consumers used to
and extending the reductions through FY2025. The specific
inflate the DSH allotments is based on the factors built into
laws that have amended the Medicaid DSH reductions are
Congressional Budget Office, The Budget and Economic Outlook: Fiscal

Years 2018 to 2028, April 2018. DSH allotments are different from
the Middle Class Tax Relief and Job Creation Act of
DSH expenditures. Allotments reflect the maximum amount of
2012 (P.L. 112-96),
federal DSH funding available to states, and DSH expenditures are
the amounts paid to hospitals.
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Medicaid Disproportionate Share Hospital (DSH) Reductions
Under current law, the aggregate reductions relative to the
Proposed Methodology for Allocating
Medicaid DSH allotments before the ACA reductions will
DSH Reductions
be an estimated 31% reduction in FY2020 and an estimated
On September 25, 2019, the Centers for Medicare &
61% reduction in FY2021, and they will phase down to an
Medicaid Services (CMS) released a final rule regarding the
estimated 55% reduction in FY2025. In FY2026, DSH
methodology for allocating the DSH reductions. The
allotments will rebound to the pre-ACA-reduced levels,
methodology for allocating the Medicaid DSH reductions
with annual inflation adjustments for FY2020 to FY2026.
begins by splitting the aggregate DSH reduction amount for
each year into two separate amounts: one DSH reduction
Statutory Requirements for Reductions
amount for low DSH states and another reduction amount
to State DSH Allotments
for non-low DSH states.
Although the aggregate DSH reduction amounts are
specified in statute, the Secretary is responsible for
Then, for each group of states, half of each group’s DSH
determining how to distribute the aggregate DSH
reductions would be allocated according to the uninsured
reductions among the states using some broad statutory
percentage factor and half of the DSH reductions would be
guidelines. The Secretary is required to impose larger
allocated according to how states target their DSH funds.
percentage DSH reductions on states that
As shown in Figure 2, the DSH reductions would be
allocated according to the uninsured percentage factor
 have the lowest percentage of uninsured individuals
(50%), how states target their DSH funds according to the
(determined by the Census Bureau’s data, audited
“high volume of Medicaid inpatient factor” (25%), and how
hospital cost reports, and other information likely to
states target their DSH funds according to the “high level of
yield accurate data) during the most recent fiscal year
uncompensated care factor” (25%). Each state’s reduction
with available data or
would be limited to 90% of the unreduced allotment
amount, which preserves at least 10% of each state’s DSH
 do not target their DSH payments to hospitals with high
allotments.
volumes of Medicaid patients and high levels of
uncompensated care (excluding bad debt).
The methodology would not reduce any portion of a state’s
Medicaid DSH allotment that was included in the budget
The statute also requires the Secretary to impose smaller
neutrality calculation for a coverage expansion that was
percentage reductions on low DSH states (i.e., states with
approved under a Section 1115 waiver as of July 31, 2009.
total Medicaid DSH payments for FY2000 between 0% and
This would affect the District of Columbia, Indiana, Maine,
3% of total Medicaid medical assistance expenditures).
Massachusetts, and Wisconsin.
The last specification provided in statute requires the
Figure 2 shows CMS’s illustrative example of the
Secretary to take into account the extent to which the DSH
methodology using a $2.0 billion aggregate Medicaid DSH
allotment for a state was included in the budget neutrality
reduction on FY2017 allotments. Under this example, CMS
calculation for a coverage expansion approved under a
estimates that low DSH states would have an average
Section 1115 waiver as of July 31, 2009.
allotment reduction of 4.6% and non-low DSH states would
have an average allotment reduction of 17.2%.
Although the statute provides the Secretary with flexibility
regarding how to allocate the DSH reductions among the
Figure 2. Illustrative Example of Proposed Medicaid
states, in general, states with the lowest percentage of
DSH Reduction Methodology
uninsured individuals can be expected to receive relatively
larger percentage DSH reductions. In addition, states that
do not target their DSH payments to hospitals with the most
Medicaid patients and highest levels of uncompensated care
can be expected to receive relatively larger percentage DSH
reductions. Also, low DSH states should receive relatively
smaller percentage DSH reductions. As a result, a non-low
DSH state with a low percentage of uninsured individuals
that does not target its DSH payments can be expected to
receive a relatively larger percentage reduction and a low
DSH state with a high percentage of uninsured individuals
that targets its DSH payments should receive a relatively
smaller percentage DSH reduction.
The magnitude of the Medicaid DSH reductions is such that
most states are expected to have DSH allotment reductions.

Tennessee is the only state that is not subject to the
Source: CRS using the illustrative DSH reduction factor weighting
Medicaid DSH reductions due to the special statutory
allocation from Centers for Medicare & Medicaid Services, “Medicaid
authority that provides Tennessee with a Medicaid DSH
Program; State Disproportionate Share Hospital Allotment
allotment.
Reductions,” 82 Federal Register 35155, July 28, 2017.
Alison Mitchell, Specialist in Health Care Financing
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Medicaid Disproportionate Share Hospital (DSH) Reductions

IF10422


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https://crsreports.congress.gov | IF10422 · VERSION 5 · UPDATED