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Updated April 1, 2020
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);
Whereas most federal Medicaid funding is provided on an
open-ended basis, federal Medicaid DSH funding is capped.
the 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
the Further Continuing Appropriations Act, 2020, and
FY2019, federal DSH allotments totaled $12.6 billion.
Further Health Extenders Act of 2019 (P.L. 116-69);
DSH Allotment Reduction Amounts
the Further Consolidated Appropriations Act, 2020 (P.L.
The Patient Protection and Affordable Care Act (ACA; P.L.
116-94); and
111-148, as amended) has reduced the number of uninsured
individuals in the United States through the health
the Coronavirus Aid, Relief, and Economic Security Act
insurance coverage provisions (including the ACA
(P.L. 116-136).
Medicaid expansion). Built on the premise that with fewer
uninsured individuals there should be less need for
Under current law, the aggregate reductions to the Medicaid
Medicaid DSH payments, the ACA included a provision
DSH allotments equal $4.0 billion for the period beginning
directing the Secretary of the Department of Health and
December 1, 2020, and ending September 30, 2021, and
Human Services (HHS) to make aggregate reductions in
$8.0 billion for each year from FY2022 through FY2025.
Medicaid DSH allotments equal to $500 million in FY2014,
$600 million in FY2015, $600 million in FY2016, $1.8
Figure 1 shows estimates of aggregate DSH allotments for
billion in FY2017, $5.0 billion in FY2018, $5.6 billion in
FY2012 through FY2028 before the ACA reductions, with
FY2019, and $4.0 billion in FY2020.
the ACA reductions, and under current law. The ACA
reductions totaled $18.1 billion, and under current law the
Despite the assumption that decreasing the number of
DSH allotment reductions total $36.0 billion.
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
FY2014 through FY2020, changing the reduction amounts,
and extending the reductions through FY2025. The specific
laws that have amended the Medicaid DSH reductions are
the Middle Class Tax Relief and Job Creation Act of
2012 (P.L. 112-96);
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Medicaid Disproportionate Share Hospital (DSH) Reductions
Figure 1. Total DSH Allotments Before the
The statute also requires the Secretary to impose smaller
Reductions, with the ACA Reductions, and Under
percentage reductions on low DSH states (i.e., states with
Current Law
total Medicaid DSH payments for FY2000 between 0% and
3% of total Medicaid medical assistance expenditures).
The last specification provided in statute requires the
Secretary to take into account the extent to which the DSH
allotment for a state was included in the budget neutrality
calculation for a coverage expansion approved under a
Section 1115 waiver as of July 31, 2009.
Although the statute provides the Secretary with flexibility
regarding how to allocate the DSH reductions among the
states, in general, states with the lowest percentage of
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
Source: CRS calculation using Consumer Price Index for All Urban
can be expected to receive relatively larger percentage DSH
Consumers estimates from Congressional Budget Office, The Budget
reductions. Also, low DSH states should receive relatively
and Economic Outlook: 2020 to 2030, January 2020.
smaller percentage DSH reductions. As a result, a non-low
DSH state with a low percentage of uninsured individuals
Under current law, the aggregate reductions relative to the
that does not target its DSH payments can be expected to
Medicaid DSH allotments before the ACA reductions will
receive a relatively larger percentage reduction and a low
be an estimated 30% reduction in FY2021 and an estimated
DSH state with a high percentage of uninsured individuals
59% reduction in FY2022, and they will phase down to an
that targets its DSH payments should receive a relatively
estimated 55% reduction in FY2025. In FY2026, DSH
smaller percentage DSH reduction.
allotments will rebound to the pre-ACA-reduced levels,
with annual inflation adjustments for FY2020 to FY2026.
The magnitude of the Medicaid DSH reductions is such that
most states are expected to have DSH allotment reductions.
Statutory Requirements for Reductions
Tennessee is the only state that is not subject to the
to State DSH Allotments
Medicaid DSH reductions due to the special statutory
Although the aggregate DSH reduction amounts are
authority that provides Tennessee with a Medicaid DSH
specified in statute, the HHS Secretary is responsible for
allotment.
determining how to distribute the aggregate DSH
reductions among the states using some broad statutory
Methodology for Allocating DSH
guidelines. The Secretary is required to impose larger
Reductions
percentage DSH reductions on states that
On September 25, 2019, the Centers for Medicare &
Medicaid Services (CMS) released a final rule regarding the
have the lowest percentage of uninsured individuals
methodology for allocating the Medicaid DSH reductions.
(determined by the Census Bureau’s data, audited
The methodology begins by splitting the aggregate DSH
hospital cost reports, and other information likely to
reduction amount for each year into two separate amounts:
yield accurate data) during the most recent fiscal year
one DSH reduction amount for low DSH states and another
with available data or
reduction amount for non-low DSH states.
do not target their DSH payments to hospitals with high
Then, for each group of states, half of each group’s
volumes of Medicaid patients and high levels of
DSH reductions would be allocated according to the
uncompensated care (excluding bad debt).
uninsured percentage factor and half of the DSH
reductions would be allocated according to how states
target their DSH funds. As shown in
Figure 2, the DSH reductions would be allocated according
The methodology would not reduce any portion of a state’s
to the uninsured percentage factor (50%), how states target
Medicaid DSH allotment that was included in the budget
their DSH funds according to the “high volume of Medicaid
neutrality calculation for a coverage expansion that was
inpatient factor” (25%), and how states target their DSH
approved under a Section 1115 waiver as of July 31, 2009.
funds according to the “high level of uncompensated care
This would affect the District of Columbia, Indiana, Maine,
factor” (25%). Each state’s reduction would be limited to
Massachusetts, and Wisconsin.
90% of the unreduced allotment amount, which preserves at
least 10% of each state’s DSH allotments.
Figure 2 shows CMS’s illustrative example of the
allotment reduction of 4.6% and non-low DSH states would
methodology using a $2.0 billion aggregate Medicaid DSH
have an average allotment reduction of 17.2%.
reduction on FY2017 allotments. Under this example, CMS
estimates that low DSH states would have an average
https://crsreports.congress.gov
Medicaid Disproportionate Share Hospital (DSH) Reductions
Program; State Disproportionate Share Hospital Allotment
Figure 2. Illustrative Example of Medicaid DSH
Reductions,” 82 Federal Register 35155, July 28, 2017.
Reduction Methodology
Alison Mitchell, Specialist in Health Care Financing
IF10422
Source: CRS using the illustrative DSH reduction factor weighting
allocation from Centers for Medicare & Medicaid Services, “Medicaid
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