To direct the Secretary of Health and Human Services to revise regulations implementing the statutory reporting and auditing requirements for the Medicaid disproportionate share hospital ("DSH") payment program to be consistent with the scope of the statutory provisions and avoid substantive changes to preexisting DSH policy.

Summary: Medicaid DSH Integrity Act - Directs the Secretary of Health and Human Services (HHS) to indicate, in appropriate guidance, that the Centers for Medicare & Medicaid Services (CMS) do not intend to enforce any changes in policy related to calculating the limits on the adjustment in payment under title XIX (Medicaid) of the Social Security Act for inpatient hospital services furnished by disproportionate share hospitals (DSH) that were contained in the Medicaid DSH auditing and reporting regulations the CMS issued pursuant to the Medicare Prescription Drug Improvement and Modernization Act of 2003.

Requires the Secretary to publish an interim final rule to revise such regulations as necessary to: (1) correct such policy changes; (2) provide appropriate guidance for otherwise implementing those auditing and reporting regulations; and (3) provide for specified regulatory changes to be included in the new interim rule.

Requires the CMS, in defining the costs of furnishing services to individuals with no health insurance (or other source of third-party coverage), to permit inclusion of all costs related to services provided to patients with no insurance for the service rendered, even if the patient has insurance that covers other services. Declares that the receipt by a hospital of nominal payments related to a service shall not constitute health insurance or a source of third-party coverage.

SECTION 1. SHORT TITLE; FINDINGS.

    (a) Short Title.--This Act may be cited as the ``Medicaid DSH 
Integrity Act''.
    (b) Findings.--Congress finds the following:
            (1) Medicaid disproportionate share hospital (``DSH'') 
        payments are a critical source of funding for many safety net 
        hospitals that provide essential access to care for the poor 
        and uninsured.
            (2) The statutory reporting and auditing requirements added 
        by the Medicare Prescription Drug Improvement and Modernization 
        Act of 2003 are important to provide assurances to Congress, 
        the Department of Health and Human Services, States and the 
        public that DSH funds are being used to fulfill their intended 
        statutory purpose of assisting hospitals that serve a 
        disproportionate share of low-income individuals.
            (3) The Centers for Medicare & Medicaid Services issued 
        Medicaid DSH auditing and reporting regulations (as defined in 
        section 2(d)) that, in implementing those reporting and 
        auditing requirements, also implemented changes to underlying 
        DSH policy which have the effect of narrowing the scope of DSH 
        payments that may be made for many States.
            (4) In adding those reporting and auditing requirements, 
        Congress did not intend to alter the definition of DSH-eligible 
        costs or to narrow the scope of DSH payments that may be made 
        under the existing DSH program and the substantive standards in 
        section 1923(g) of the Social Security Act (42 U.S.C. 1396r-
        4(g)).
            (5) The policy changes in such regulations would result in 
        DSH payment reductions of millions of dollars to critical 
        safety net providers that have long participated in the 
        Medicaid DSH program under payment methodologies previously 
        approved by CMS.

SEC. 2. REVISION OF MEDICAID DSH AUDITING AND REPORTING REGULATIONS.

    (a) In General.--Not later than 60 days after the date of enactment 
of this Act, the Secretary of Health and Human Services, in 
consultation with States and disproportionate share hospitals (as 
determined for purposes of the Medicaid DSH program), shall--
            (1) indicate, in appropriate guidance, that CMS does not 
        intend to enforce any changes in policy related to the 
        calculation of the limits under section 1923(g)(1)(A) of the 
        Social Security Act that were contained in the Medicaid DSH 
        auditing and reporting regulations; and
            (2) publish an interim final rule to revise the Medicaid 
        DSH auditing and reporting regulations at sections 447.299(c) 
        and 455.304 of title 42, Code of Federal Regulations, as 
        necessary--
                    (A) to correct policy changes related to the 
                calculation of the limits under section 1923(g)(1)(A) 
                of the Social Security Act;
                    (B) to provide appropriate guidance for otherwise 
                implementing the Medicaid DSH auditing and reporting 
                regulations; and
                    (C) to provide for the regulatory changes described 
                in subsection (b).
    (b) Regulatory Changes To Be Included in New Interim Final Rule.--
The regulatory changes described in this subsection are the following:
            (1) In defining the costs of furnishing services to 
        individuals with no health insurance (or other source of third-
        party coverage), CMS shall permit inclusion of all costs 
        related to services provided to patients with no insurance for 
        the service rendered, even if the patient has insurance that 
        covers other services. The receipt by a hospital of nominal 
        payments related to a service shall not constitute health 
        insurance or a source of third-party coverage.
            (2) Consistent with prior guidance of CMS contained in a 
        letter to State Medicaid directors on August 17, 1994, CMS 
        shall permit States to use the definition of allowable costs in 
        its State Medicaid plan, or any other definition, in computing 
        such costs as long as the costs determined under such a 
        definition do not exceed the amounts that would be allowable 
        under the Medicare principles of cost reimbursement. CMS shall 
        interpret the language of the audit requirement at section 
        1923(j)(2)(C) of the Social Security Act describing ``inpatient 
        hospital and outpatient hospital services'' to be consistent 
        with the term ``hospital services'' as used in section 
        1923(g)(1)(A) of such Act and not to indicate an intent by 
        Congress for a more restrictive interpretation of such section 
        1923(g)(1)(A).
            (3) CMS shall, as appropriate, revise the General DSH Audit 
        and Reporting Protocol referenced in the Medicaid DSH auditing 
        and reporting regulations and issued at the same time as those 
        regulations, in particular, to permit the use of either an 
        overall cost-to-charge ratio or departmental cost-to-charge 
        ratios.
            (4) CMS shall revise section 455.304(d)(2) of title 42, 
        Code of Federal Regulations, to permit alternative 
        methodologies for determining actual costs, including through 
        trending forward costs from prior years.
    (c) Initiation of Requirements.--
            (1) In general.--Section 1923(j) of the Social Security Act 
        (42 U.S.C. 1396r-4(j)) is amended by striking ``2004'' and 
        inserting ``2008''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall be effective as if included in the enactment of the 
        Medicare Prescription Drug, Improvement, and Modernization Act 
        of 2003 (Public Law 108-173).
    (d) Definitions.--In this Act:
            (1) The term ``CMS'' means the Centers for Medicare & 
        Medicaid Services.
            (2) The term ``Medicaid DSH auditing and reporting 
        regulations'' means the final regulation issued on December 19, 
        2008, and published beginning at 73 Federal Register 77904.
            (3) The term ``Medicaid DSH program'' means the program of 
        payment adjustments under section 1923 of the Social Security 
        Act (42 U.S.C. 1396r-4).
            (4) The term ``Secretary'' means the Secretary of Health 
        and Human Services, acting through CMS.