Pursuant to the Affordable Care Act, the Centers for Medicare and Medicaid Services recently adopted a final rule implementing $1.1 billion in cuts to the Medicaid disproportionate share hospital (DSH) program in 2014 and 2015. The new rule reduces Medicaid DSH payments by $500 million in 2014 and $600 million in 2015.

There are several factors that impact how CMS will implement these reductions across the states. CMS will apply smaller reductions to hospitals in low-DSH states. States with fewer uninsured individuals and states that do not direct Medicaid DSH payments to hospitals with high Medicaid and uncompensated care volumes will absorb larger cuts.

The Medicaid DSH program reimburses hospitals that serve significant Medicaid and uninsured populations. Supporters of ACA believe that Medicaid DSH payments will be less necessary because fewer people will be uninsured. In states that do not expand Medicaid, however, safety net hospitals may receive cuts in their Medicaid DSH funding without corresponding reductions in their uninsured populations.

Between 2016 and 2020, ACA mandates further cuts totaling $17 billion.