National Association of State Mental Health Program Directors 66 Canal Center Plaza, Suite 302, Alexandria, VA 22314 (703) 739-9333 Fax (703) 548-9517 October 2014 The Dish on DSH • The ACA substantially reduces DSH payments historically received by qualifying hospitals for uncompensated care. CBO originally estimated the savings stemming from the reductions in Medicare and Medicaid DSH payments will amount to $36 billion by 2019 ($22.1 billion for Medicare and $14 billion for Medicaid). • Under the ACA, starting in FY 2014 and for each subsequent fiscal year, Medicare DSH payments that hospitals receive were to be reduced based on a formula. Each DSH hospital would still receive 25% of its previous DSH payment calculation plus an additional payment based on a complex formula. The additional DSH payment would be calculated based on the product of: (1) the remaining 75% that the DSH hospital would have otherwise received in the absence of the ACA; (2) the percentage decrease in the number of uninsured; and, (3) the amount of uncompensated care that the DSH hospital provides as compared to all DSH hospitals. • The ACA did not mandate the use of any particular data source in determining the applicable reduction in the number of uninsured. In addition, it did not define "uncompensated care," leaving open questions to be defined through regulations adopted by the Centers for Medicare and Medicaid Services (CMS). • Under the ACA, State Medicaid DSH payments were to be reduced quarterly starting in FY 2014. The aggregate reductions mandated by the legislation were: $500 million for FY 2014, $600 million for each of FYs 2015 and 2016, $1.8 billion for FY 2017, $5 billion for FY 2018, $5.6 billion for FY 2019, and $4 billion in FY 2020. The ACA, while mandating that low DSH States receive a smaller percentage reduction, granted the Secretary of Health and Human Services discretion in the methodology adopted to implement the reductions and apportion them among the states. • Since passage of the ACA, three separate pieces of Congressional legislation have delayed implementation until FY 2017 (October 1, 2016) and extended the reductions through FY 2024: o The Middle Class Tax Relief and Job Creation Act of 2012 extended reductions to FY 2022. o Sec. 1204 of Bipartisan Budget Act of 2013 delayed implementation of the DSH payment cuts until FY 2016 and extended reductions through FY 2023. o Protecting Access to Medicare Act of 2014 delayed reductions to FY 2017 and extended reductions to FY 2024. • Under the amended law, instead of aggregate reductions beginning at $500 million in the first year, the aggregate reductions in FY 2017 will total $1.8 billion. Reductions in FYs 2018 to 2020 will be $4.7 billion each year, in FY 2021 will be $4.8 billion, in FYs 2022 and 2023 will be $5 billion each year, and in FY 2024 will be $4.4 billion. • As a result of the implementation delays, the methodology for calculating reductions, proposed by CMS for FY 2014 and FY 2015 in September 2013 regulations, has never been implemented. It is likely CMS will propose revisions to that methodology in 2016.
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