To improve “…the relationship between total state and federal DSH [Medicaid disproportionate share] funding and the number of non-elderly low-income individuals in a state,” the Medicaid and CHIP Payment and Access Commission has urged Congress to direct the Department of Health and Human Services to change how it calculates Medicaid DSH allotments to the states.

This year MACPAC devotes a significant portion of its annual report to Congress to payment policy for safety-net hospitals, and in summarizing its proposal it writes that:

  • In order to reduce the wide variation in state disproportionate share hospital (DSH) allotments based on historical spending, Congress should revise Section 1923 of the Social Security Act to require the Secretary of Health and Human Services to develop a methodology to distribute reductions in a way that gradually improves the relationship between total state and federal DSH funding and the number of non-elderly low-income individuals in a state, after adjusting for differences in hospital costs in different geographic areas.
  • Congress should amend Section 1923 of the Social Security Act to ensure that total state and federal disproportionate share hospital funding is not affected by changes in the federal medical assistance percentage.
  • Congress should amend the Social Security Act to provide an automatic Medicaid countercyclical financing model, using the prototype developed by the U.S. Government Accountability Office as the basis. The Commission recommends this policy change should also include:
    • an eligibility maintenance of effort requirement for the period covered by an automatic countercyclical financing adjustment;
    • an upper bound of 100 percent on adjusted matching rates;
    • an increase in federal disproportionate share hospital (DSH) allotments so that total available DSH funding does not change as a result of changes to the federal medical assistance percentage (FMAP); and
    • an exclusion of the countercyclical FMAP from non-DSH spending that is otherwise capped or have allotments (e.g., territories) and other services and populations that receive special matching rates (e.g., for the new adult group).
  • To provide states and hospitals with greater certainty about available disproportionate share hospital (DSH) allotments in a timely manner, Congress should amend Section 1923 of the Social Security Act to remove the requirement that the Centers for Medicare & Medicaid Services compare DSH allotments to total state Medicaid medical assistance expenditures in a given year before finalizing DSH allotments for that year.MACPAC explains its proposal by noting that:
  • Unlike other Medicaid payments, DSH payments are capped at the state level by federal allotments.
  • Because DSH allotments are set on a federal funding basis, total available state and federal DSH funding decreases when the FMAP increases.
  • Periods of normal economic growth result in less total DSH funding for states with declining per capita incomes relative to other states.
  • When Congress increases the FMAP during economic recessions, the total available DSH funding for all states is reduced, although the need for DSH payments is greater.
  • Calculating DSH allotments on a total funding basis would ensure total DSH funding is not affected by changes in the FMAP, similar to how other limits on Medicaid spending are set.

The resulting change, MACPAC writes, would “…enhance the financial stability of safety-net hospitals and offset uncompensated care costs.”

MACPAC is a non-partisan legislative branch agency that provides policy and data analysis and makes recommendations to Congress, the Secretary of the U.S. Department of Health and Human Services, and the states on a wide variety of issues affecting Medicaid and the State Children’s Health Insurance Program.

Learn more about MACPAC’s proposal for revising Medicaid DSH payments to help safety-net hospitals and other aspects of the agency’s recommendations to Congress in its new “Report to Congress on Medicaid and CHIP.”