On Friday, November 28, 2014, CMS issued a Final Rule providing that, for purposes of the hospital-specific limitation on Medicaid disproportionate share hospital (DSH) payments, the definition of “uninsured” will now be applied on a service-specific basis, “so that the calculation of uncompensated care . . . will include the cost of each service furnished to an individual by that hospital for which the individual had no health insurance or other source of third party coverage.”  Under the hospital-specific limitation, DSH payments to a hospital cannot exceed the uncompensated costs of furnishing hospital services by the hospital to individuals who are Medicaid-eligible or “have no health insurance (or other source of third party coverage) for the services furnished during the year.”  The Final Rule becomes effective on December 31, 2014.

CMS issued the Final Rule “to mitigate some of the unintended consequences of the uninsured definition put forth in the 2008 DSH final rule and to provide additional clarity on which costs can be considered uninsured costs for purposes of determining the hospital-specific limit.”  Under the 2008 DSH Final Rule, the definition of uninsured was applied on an “individual-specific” basis rather than a service-specific basis.  CMS’s implementation of this definition caused “numerous states, members of the Congress, and related stakeholders [to] express[] their concern that the 2008 DSH final rule definition of the uninsured deviated from prior guidance and would have a significant financial impact on states and hospitals.”  As CMS explained in issuing the Final Rule, although the newly-issued definition of “uninsured” may affect the calculation of the hospital-specific DSH limit, the rule does not modify the DSH allotment amounts. 

A copy of CMS’s Final Rule is available here.