DEPARTMENT OF HEALTH & HUMAN SERVICES 
Centers for Medicare & Medicaid Services 
7500 Security Boulevard, Mail Stop S2-26-12 
Baltimore, Maryland   21244-1850 
SMD# 21-006 
RE: New Supplemental Payment Reporting 
and Medicaid Disproportionate Share 
Hospital Requirements under the 
Consolidated Appropriations Act, 2021 
December 10, 2021 
Dear State Medicaid Director: 
The Consolidated Appropriations Act, 2021 (CAA) was enacted on December 27, 2020.1  It 
established a number of new requirements for state Medicaid programs, including, in Division CC, 
Title II, Section 202 (section 202), the addition of section 1903(bb) of the Social Security Act (the 
Act) to specify new supplemental payment reporting requirements.  As defined in section 
1903(bb)(2) of the Act, supplemental payments are payments to providers that are in addition to any 
base payment made to the provider under the state plan or demonstration authority, not including 
disproportionate share hospital (DSH) payments under section 1923 of the Act.  The CAA also 
amended section 1923(g) of the Act, which describes the methodology for calculating hospital-
specific Medicaid DSH limits, in Division CC, Title II, Section 203 of the CAA (section 203).  This 
letter discusses new requirements related to supplemental payments, as well as new requirements for 
DSH. 
This guidance discusses new statutory supplemental payments reporting provisions, describing new 
requirements in section 1903(bb) of the Act in the context of existing requirements for a state plan 
amendment (SPA) that would provide for supplemental payments, upper payment limit (UPL) 
demonstrations, and claiming Medicaid expenditures for federal financial participation, as well as the 
Secretarys authority to require reports under section 1902(a)(6) of the Act and 42 C.F.R.  431.16, in 
the form and containing such information as the Secretary may require.  This letter presents general 
information on the new statutory requirements, describes processes available to states to comply, and 
provides technical information to facilitate states compliance with the statute.  CMS may provide 
additional guidance on these requirements in the future.  As indicated below, CMS intends to undergo 
notice-and-comment rulemaking to update the regulatory reporting requirements for Medicaid DSH 
payments to reflect the statutory changes to section 1923(g) of the Act.  
Section 1. New Supplemental Payment Reporting under Section 1903(bb) of the Act 
1 P.L. 116-260. 
The contents of this document do not have the force and effect of law and are not meant to bind the public in any way, 
unless specifically incorporated into a contract. This document is intended only to provide clarity to the public regarding 
existing requirements under the law. 
1  Through passage of Division CC, Title II, Section 202 of the CAA, Congress added subsection (bb) 
to section 1903 of the Act, which requires the Secretary of Health and Human Services to establish a 
system for states to submit reports on supplemental payments as defined in section 1903(bb)(2) of the 
Act, no later than October 1, 2021.  States are required to submit reports, as determined appropriate 
by the Secretary, on supplemental payments data, as a requirement for a State plan or State plan 
amendment [SPA] that would provide for a supplemental payment as required by section 
1903(bb)(1) of the Act.  Since all states currently have an approved state plan, we interpret this 
requirement to apply both with respect to a State plan that currently provides for supplemental 
payments, as well as to SPAs that states may request that would provide for supplemental payments, 
if approved.  We further interpret this requirement to apply with respect to all supplemental 
payments data as supplemental payment is defined in section 1903(bb)(2)(A) of the Act, to 
include all payments to providers in addition to any base payment (except DSH payments), whether 
under state plan or demonstration authority.  Information about all supplemental payments under the 
state plan and under demonstration authority is necessary to provide a full picture of Medicaid 
payments.  Furthermore, comprehensive information about all supplemental payments generally will 
be necessary for states to submit the information required under section 1903(bb)(1)(B)(i) of the Act, 
which requires an explanation of how state plan payments are consistent with section 1902(a)(30)(A) 
of the Act, as discussed further below.2  
 
With regard to base payments, state payment methodologies typically provide for a standard payment 
to the provider on a per-claim basis for services rendered to a Medicaid beneficiary in a fee-for-
service environment.  We interpret base payment, as used in the definition of supplemental 
payment in section 1903(bb)(2)(A) of the Act, to refer to these payments, including any payment 
adjustments, add-ons, or other additional payments received by the provider that can be attributed to 
services identifiable as having been provided to an individual beneficiary, including those that are 
made to account for a higher level of care or complexity or intensity of services provided to an 
individual beneficiary.3 Notably, CMS has long considered final reconciliation payments made under 
a cost reconciliation methodology where the state has established an interim payment methodology 
                                                 
2 Some states make supplemental payments to providers of home and community-based services (HCBS) through waivers 
under section 1915(c) of the Act.  Because section 1903(bb)(2) specifically defined supplemental payment to include 
payments under the state plan or under demonstration authority, without referring to waivers, we currently do not interpret 
the term to include supplemental payments under 1915(c) HCBS waivers or any other waiver authority, other than in 
the context of a demonstration under section 1115 of the Act.  While we frequently have interpreted legislative references 
to waiver authority to include reference to section 1115 demonstrations (including those implemented under section 
1115(a)(2) expenditure authority, regardless of whether a section 1115(a)(1) waiver is involved), it is not clear that 
Congress intended the term demonstration authority as used in section 1903(bb)(2)(A) to include waivers other than in 
a section 1115 demonstration.  However, we do not believe this limitation will compromise states and our ability to 
ensure that payments for 1915(c) HCBS waiver services are consistent with efficiency and economy as required under 
section 1902(a)(30)(A) of the Act and as explanatory reporting is required under section 1903(bb)(1)(B)(i) of the Act, 
because payments for these services in the case of a state with a 1915(c) HCBS waiver generally are made exclusively 
under the waiver, and comprehensive review of the states payments for those services can be accomplished through the 
applicable waiver review process.  Although we are not currently interpreting the supplemental payments data reporting 
requirements under section 1903(bb) of the Act to extend to supplemental payments authorized under a waiver authority 
other than a section 1115 demonstration, we may revisit this question in the future. 
3 For example, a state establishes a base per diem payment amount for nursing facilities and calculates an additional 
payment add-on for facilities located in rural areas. So long as the add-on amount is paid on the initial claim for services 
or is included in a single base payment amount that includes the regular service payment plus the regional adjustment 
amount, then that total payment constitutes the full base payment amount. 
 
The contents of this document do not have the force and effect of law and are not meant to bind the public in any way, 
unless specifically incorporated into a contract. This document is intended only to provide clarity to the public regarding 
existing requirements under the law. 
 
2  and then reconciles a providers interim payments to its actual costs in a final cost reconciliation as 
not being supplemental payments.4  
 
As a condition of approval for a state plan or SPA that would provide for a supplemental payment, 
states must report the below-described required information through the CMS-designated reporting 
system, beginning with supplemental payments data about payments made on or after October 1, 
2021.  The data submitted must include both narrative information as well as quantitative, provider-
specific data on supplemental payments, as discussed below.  With this information, CMS will better 
be able to review and provide oversight of Medicaid supplemental payments paid to individual 
providers under the state plan or demonstration authority.  Further, the information will provide CMS 
more complete information when evaluating, developing, and implementing possible changes to 
Medicaid payment policy and fiscal integrity policy.  As required by section 1903(bb)(1)(C) of the 
Act, CMS will make the state-reported supplemental payment information publicly available. 
 
By not later than October 1, 2021, section 1903(bb)(1) of the Act requires CMS to establish a system 
through which states making or wishing to make supplemental payments must report specified 
information, including:  
 
  An explanation of how supplemental payments made under the state plan or a state plan 
amendment will result in payments that are consistent with section 1902(a)(30)(A) of the Act, 
including standards with respect to efficiency, economy, quality of care, and access, along with 
the stated purpose and intended effects of the supplemental payment. 
  The criteria used to determine which providers are eligible to receive the supplemental payment. 
  A comprehensive description of the methodology used to calculate the amount of, and distribute, 
the supplemental payment to each eligible provider, including: 
  data on the amount of the supplemental payment made to each eligible provider, if known, 
o
or if the total amount is distributed using a formula for one or more fiscal years, data on 
the total amount of supplemental payments for the fiscal year(s) available to all providers 
eligible to receive a supplemental payment; 
  if applicable, the specific criteria with respect to Medicaid service, utilization, or cost data 
o
to be used as the basis for calculations regarding the amount or distribution of the 
supplemental payment; and 
  the timing of the supplemental payment made to each eligible provider. 
o
  An assurance that the total Medicaid payments made to an inpatient hospital provider, including 
the supplemental payment, will not exceed upper payment limits, as applicable. 
  If not already submitted, a UPL demonstration under 42 C.F.R.  447.272, as applicable.  
 
Existing Supplemental Payment Reporting and State Plan Processes 
 
Under the current state plan requirements and the SPA process, states have been required to provide 
information that is generally consistent with the data reporting elements included in section 
                                                 
4 The reason for this is twofold.  First, reconciled cost is the base reimbursement methodology for all services provided by 
a given provider or facility under a cost-reconciled interim payment methodology.  Second, cost reconciliation may 
include either an additional payment to the provider or a return of funds to the state, if the provider received aggregate 
interim payments that are greater than the sum of its costs.  This potential for return of funds to the state is characteristic 
of a base payment methodology that uses interim payments reconciled to final cost, but is not characteristic of 
supplemental payments, which may be intended to increase a providers base payment. 
The contents of this document do not have the force and effect of law and are not meant to bind the public in any way, 
unless specifically incorporated into a contract. This document is intended only to provide clarity to the public regarding 
existing requirements under the law. 
 
3  1903(bb)(1)(B) of the Act, and listed above, to meet the requirements of  42 C.F.R.  430.10, 
including that the state plan must give assurance that it will be administered in conformity with the 
specific requirements of title XIX of the Act and its implementing regulations, and that it contain 
all information necessary for CMS to determine whether the plan can be approved to serve as a basis 
for Federal financial participation (FFP) in the State program. The new reporting requirements in 
section 1903(bb)(1)(B) of the Act notably expand on the information CMS heretofore has required as 
part of the usual SPA process by including, in section 1903(bb)(1)(B)(iii)(I) of the Act, data on the 
amount of the supplemental payment made to each eligible provider, if known[.] Our practice has 
not been generally to require this provider-specific payment information, except in cases where this 
information was needed as part of a UPL demonstration for the state to show compliance with an 
applicable Medicaid UPL for the specific service.  
 
Under the current state plan requirements and the SPA process, when a state adds a new, or modifies 
an existing base or supplemental payment through a SPA, or submits a new or updated UPL 
demonstration, CMS requests certain information documenting compliance with applicable statutory 
and regulatory requirements.  For example, any SPA that proposes a supplemental payment must 
describe how the proposed supplemental payment methodology is consistent with economy and 
efficiency as required under section 1902(a)(30)(A) of the Act, as well as the criteria used to 
determine which providers are eligible for a supplemental payment and the distribution methodology 
for the payment.  For supplemental payments within a class of services subject to an UPL, CMS also 
requires annual UPL demonstration submissions describing the UPL methodology and including 
supporting documentation showing which providers are eligible for the supplemental payment and 
the estimated total amounts they will be paid, including base and supplemental payments; and the 
aggregate amount of these payment totals for all providers of the class of services is then compared to 
the UPL.5 For information submitted by a state as part of a SPA request, including UPL 
demonstrations and supporting documentation, where required, we have maintained the information 
as part of the administrative record of the state plan but have not appended the supporting 
documentation to the state plan itself. This supporting information has been documented and archived 
in our state plan records, but it has not, to date, been housed within a specified reporting system 
amenable to quick information retrieval and public reporting. 
 
States are also required to keep detailed records related to their claims for FFP, including 
documentation that details the amounts paid to providers under the state plan or demonstration 
authority, as applicable.  The amounts reported on the Form CMS-64 and its attachments must 
represent actual expenditures and credits for which all supporting documentation, in readily 
reviewable form, has been compiled and is available at the time the claim is filed.6 Currently, states 
report aggregate expenditures associated with supplemental payments for five categories of services 
on the Form CMS-64 on a quarterly basis.  As part of its oversight activities to determine the 
allowability of the states claimed expenditures, CMS occasionally requests supporting 
documentation from the state detailing provider-specific base and supplemental payment amounts.  
States must have this information available in case CMS requires the information to establish that all 
applicable requirements for FFP are met, including that the claim for FFP represents actual 
expenditures and that the UPL, if applicable, is not exceeded.  CMSs expectation is that the states 
                                                 
5 This example is illustrative only; we note that the reporting requirements under section 1903(bb) are not limited to 
supplemental payments for services that are subject to a UPL. 
6 42 C.F.R.  430.30(c) and the CMS State Medicaid Manual, Chapter 2,  2500.2, available at 
https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Paper-Based-Manuals-Items/CMS021927 
The contents of this document do not have the force and effect of law and are not meant to bind the public in any way, 
unless specifically incorporated into a contract. This document is intended only to provide clarity to the public regarding 
existing requirements under the law. 
 
4  already have access to provider-specific supplemental payment information described in section 
1903(bb)(1)(B) of the Act because this information is necessary to comply with the existing SPA 
review and the CMS-64 claiming processes. 
Reporting System for Information Required Under Section 1903(bb) of the Act 
Pursuant to section 1903(bb)(1)(A) of the Act, we are initially designating the Medicaid Budget and 
Expenditure System (MBES) as the system established for states to submit the reporting information 
required under section 1903(bb)(1) of the Act.  Certain information that is typically generated and 
maintained by states, and sometimes provided to CMS, as part of the SPA submission and the Form 
CMS-64 expenditure reporting processes will now also be collected through a supplemental reporting 
form within MBES, which will reflect the entire set of data reporting elements required under section 
1903(bb)(1)(B) of the Act.  Our centralized collection of all supplemental payments data required 
under section 1903(bb) of the Act through the MBES, which is already familiar to states, will 
facilitate the uniform collection of all data elements required under section 1903(bb)(1)(B) of the Act, 
and their public reporting, as required under section 1903(bb)(1)(C) of the Act.  As noted above, 
CMS anticipates that the states already will have the required information readily available, as this 
information is necessary to support SPA submissions, UPL demonstrations, and aggregate-level 
supplemental payment data already reported on the CMS-64.  We will issue further technical 
instructions to states regarding the lines and supplemental forms on which to enter the reporting 
information required under section 1903(bb)(1)(B).  CMS is actively working to modify the MBES to 
reflect the new reporting requirements and to facilitate states entry of the necessary information 
while minimizing administrative burden; any changes to MBES reporting forms will be summited  
through the Paperwork Reduction Act of 1995 (PRA) review process and approved by the Office of 
Management and Budget.  
Once modified, the updated MBES reporting will capture all of the narrative and quantitative data 
required under section 1903(bb)(1)(B), including data on the amount of the supplemental payments 
made to each provider under both the state plan and demonstration authorities consistent with section 
1902(a)(30)(A) of the Act, when FFP in such payments is claimed.  In addition to the states quarterly 
expenditure report on the CMS-64, a state will also report provider-specific base and supplemental 
payment amount information, which will support the CMS-64 claim submitted through the MBES.  
We have elected to use MBES as the designated reporting system under section 1903(bb)(1)(A) in 
part so that provider-level payment data required to be reported under section 1903(bb)(1)(B)(iii)(I) 
readily can be reviewed in the context of actual state expenditures for Medicaid provider payments.7 
Additionally, this reporting will help ensure the correctness and verification of the information states 
submit through the SPA process to request a new supplemental payment, which includes a 
comprehensive description of the methodology, timing, and the formula for the distribution of 
payments to providers, and, if necessary, a revised UPL demonstration including estimated base and 
supplemental payment amounts to the eligible providers to demonstrate that there is adequate room 
under the states UPL to support the proposed supplemental payments.  As noted earlier, CMS 
expects that states will have in their possession all of the information required, including the 
7 In addition to section 1903(bb) of the Act, requesting provider-specific payment information through MBES is 
supported by the requirement under section 1902(a)(6) of the Act that the state must make reports, in such form and 
containing such information, as the Secretary may from time to time require, and comply with such provisions as the 
Secretary may from time to time find necessary to assure the correctness and verification of such reports, including to 
ensure the correctness and verification of the aggregate claimed expenditure reporting on the CMS-64. 
The contents of this document do not have the force and effect of law and are not meant to bind the public in any way, 
unless specifically incorporated into a contract. This document is intended only to provide clarity to the public regarding 
existing requirements under the law. 
5  provider-specific payment amounts when approved supplemental payments are actually made and 
claimed for FFP, as the aggregate expenditures reported on the CMS-64 comprise the individual, 
provider-specific payment amounts.   
 
Given the statutory requirement in section 1903(bb)(1)(A) of the Act that we establish a system to 
collect the required supplemental payments data by not later than October 1, 2021, which is the first 
day of the first quarter of federal fiscal year (FY) 2022, we believe Congress intended CMS to begin 
collecting the information specified in section 1903(bb)(1)(B), beginning with information about FY 
2022.  Accordingly, states will be required to begin reporting the data required under section 
1903(bb)(1)(B) when claiming FFP in currently approved supplemental payments on the CMS-64 for 
payments made to providers in the quarter beginning October 1, 2021, and when requesting a SPA 
that would provide for a new, renewed, or modified supplemental payment beginning on or after that 
date.  We do not interpret the new reporting requirements under section 1903(bb) of the Act to extend 
to supplemental payments made by the state before October 1, 2021, although, as discussed above, 
states generally are expected to have and maintain this information pursuant to separate federal 
requirements, including to support claims for FFP. 
 
Consistent with the requirement under section 1903(bb)(1) of the Act that states submit reports, as 
determined appropriate by the Secretary, on supplemental payments data as that term is defined in 
section 1903(bb)(2) to include payments under the state plan or under demonstration authority, and 
consistent with the requirement under section 1903(bb)(1)(B)(i) that the states reporting must 
explain how payments will remain consistent with efficiency and economy as required under section 
1902(a)(30)(A) of the Act, supplemental payments made under demonstration authority will also be 
included in the reporting. This includes uncompensated care (UC) pool payments, delivery system 
reform incentive payments (DSRIP), and possibly designated state health program (DSHP) payments 
to the extent that such payments meet the definition of supplemental payment as specified in section 
1903(bb)(2) of the Act.  We are available to provide technical assistance to states in determining 
whether the states DSHP payments qualify as supplemental payments within the meaning of section 
1903(bb)(2) of the Act.  States reporting must include required information for supplemental 
payments regardless of whether the supplemental payments are subject to a UPL, because the 
statutory definition of supplemental payments is not limited to those for services to which a UPL 
applies.  Therefore, information about supplemental payments that are not subject to a regulatory 
UPL, such as supplemental payments for physicians or other Medicaid practitioners, must be 
reported. 
 
The new reporting requirements under section 1903(bb) of the Act supplement the information states 
are required to submit during the review process for certain SPAs, section 1115 demonstration 
requests, and annual UPL demonstrations.  CMS will continue to require states to document statutory 
and regulatory compliance as part of our approval and oversight procedures, including these routine 
SPA, section 1115 demonstration, and UPL review processes.  While the information received 
through SPA and section 1115 demonstration approval procedures and the annual UPL reporting 
process document consistency with statutory and regulatory requirements at the time of approval and, 
annually in the case of UPL demonstrations, the new collection of reporting information required 
under section 1903(bb) of the Act through the MBES will enable improved, ongoing oversight of 
Medicaid payments to better ensure continuing compliance with all applicable statutory and 
regulatory requirements.   
 
Process and Timeframe for Data Reporting 
The contents of this document do not have the force and effect of law and are not meant to bind the public in any way, 
unless specifically incorporated into a contract. This document is intended only to provide clarity to the public regarding 
existing requirements under the law. 
 
6   
States will report all of the information required under section 1903(bb)(1)(B) of the Act through the 
MBES reporting system, as previously described.  Once we have completed the intended 
modifications to MBES, the reporting form will allow states to enter narrative information, where 
appropriate, which will carry over on the form from one MBES submission to the next.  This will 
reduce burden on states by not requiring them to duplicate narrative information that has not changed 
from one quarterly MBES submission to the next.  When there is new or changed narrative 
information to provide, the state will be able to modify the carried-over content on the MBES form, 
such as when the state makes a change to any of its Medicaid supplemental payments or 
supplemental payment methodologies.   
 
Most of the data collected pursuant to section 1903(bb) of the Act will be collected as narrative 
responses and assurances from the state, similar to how much information and assurances of 
compliance with applicable requirements are collected from states during the SPA review process.  
The data element listed in section 1903(bb)(1)(B)(iii)(I) of the Act, however, will be collected as a 
list that will include quantitative data detailing the the amount of the supplemental payment made to 
each eligible provider, if known, which will require provider-specific reporting of payments 
amounts for currently approved supplemental payments as FFP in such payments is claimed on the 
CMS-64, and for proposed supplemental payments where the amount each qualifying provider is 
proposed to receive is known by the state.  For supplemental payments where the provider-specific 
payment amount is not known, if the total amount is distributed using a formula based on data from 
one or more fiscal years, the MBES form will collect data on the total amount of the supplemental 
payments for the fiscal year or years available to all providers eligible to receive a supplemental 
payment.  Consistent with section 1903(bb)(1)(B)(i) of the Act, states will also be required to include 
in this provider-specific reporting the amount of base payments made to the provider under state plan 
and/or demonstration authority, which is necessary to ensure that payments are consistent with 
section 1902(a)(30)(A) of the Act and to assure the correctness and verification of state assurances in 
this regard. 
 
As discussed above, as a condition of approval for a state plan or SPA that would provide for a 
supplemental payment, states must report the information required under section 1903(bb)(1)(B) of 
the Act through the MBES, beginning with supplemental payments data about payments made on or 
after October 1, 2021.  Thus, in alignment with the quarterly MBES reporting cycle, the first newly 
required reporting will be through the Form CMS-64 expenditure report for the quarter from October 
1, 2021 to December 31, 2021.  States will be expected to submit the required reports through MBES 
at the same time the state certifies the Form CMS-64 as a condition of approval for a newly requested 
supplemental payment and to support the states claim for FFP in expenditures for currently approved 
supplemental payments on the quarterly Form CMS-64.  As noted above, we will be modifying the 
MBES to include new forms for states to report narrative and provider-specific, quantitative 
information for all supplemental payments under state plan and demonstration authority, as described 
in section 1903(bb) of the Act, beginning with the reporting period for the quarter beginning October 
1, 2021. 
 
Compliance and Enforcement 
 
Consistent with section 1903(a) of the Act and implementing regulations in 42 C.F.R.  430.30, states 
must document expenditures to ensure a clear audit trail.  CMS will conduct oversight to ensure that 
the state expenditures are allowable and accurate.  CMS will view a lack of complete and accurate 
The contents of this document do not have the force and effect of law and are not meant to bind the public in any way, 
unless specifically incorporated into a contract. This document is intended only to provide clarity to the public regarding 
existing requirements under the law. 
 
7  reporting of all information required under section 1903(bb)(1)(B) of the Act as possible grounds for 
disapproval of SPA requests that would provide for a new, renewed, or modified supplemental 
payment.  In addition, we may take a states compliance with these statutory reporting requirements 
into account in determining whether to approve a section 1115 demonstration request for 
supplemental payment authority.  Finally, incomplete or inaccurate reporting of required information 
concerning expenditures for supplemental payments claimed on the quarterly Form CMS-64 may 
result in deferral and/or disallowance of claimed amounts as provided in 42 C.F.R.   430.40 and 
430.42, respectively.  However, in light of the short timeframe for commencing this newly required 
reporting, CMS understands that these new reporting requirements will require significant work with 
our state partners.  CMS is committed to making every effort to work in good faith with states to 
assist them in meeting the requirements of the statute.  
Section 2 - Medicaid Shortfall Calculations under Section 1923(g) of the Act 
Division CC, title II, section 203 of the CAA amended section 1923(g) of the Act, which describes 
the methodology for calculating hospital-specific Medicaid DSH limits, effective October 1, 2021.  
Under the amended provisions establishing hospital-specific limits, a hospitals DSH payment may 
not exceed the costs incurred by that hospital in furnishing services during the year to Medicaid 
beneficiaries for whom Medicaid is the primary payer and the uninsured, less other (non-DSH) 
Medicaid payments made to the hospital and payments made by uninsured patients. 
Effective October 1, 2021, the amendments to section 1923(g) of the Act made by section 203 change 
the methodology for calculating the Medicaid shortfall portion (Medicaid costs less Medicaid 
payments) of the hospital-specific DSH limit to only include costs and payments for hospital services 
furnished to beneficiaries for whom Medicaid is the primary payer.  Costs and payments associated 
with services furnished to Medicaid-eligible individuals for whom Medicaid is not the primary payer 
are excluded from the calculation of the hospital-specific DSH limit.  The calculations for the 
uninsured portion of the hospital-specific DSH limit are substantively unaffected by the amendments 
made by section 203, and continue to include payments made to the hospital by or on behalf of 
uninsured individuals (except for payments on behalf of indigent patients made by the state or unit of 
local government).  
Section 1923(g)(2) of the Act, as amended, provides an exception for certain hospitals that are in the 
97th percentile or above of all hospitals with respect to the number of Medicare supplemental security 
income (SSI) days (that is, inpatient days made up of patients who, for such days, were entitled to 
Medicare Part A benefits and to SSI benefits) or percentage of Medicare SSI days to total inpatient 
days.  Hospitals to which this exception applies will calculate their hospital-specific DSH limit using 
the higher value of either the hospital-specific DSH limit calculation resulting from the methodology 
that was specified in section 1923(g)(1)(A) on January 1, 2020 (that is, the methodology that was in 
effect prior to the amendments made by section 203) or the methodology in effect as of October 1, 
2021.  
Currently, there is no readily available source of data available to determine the application of this 
exception.  The Medicare SSI days and ratio information for use in the Medicare disproportionate 
share adjustment calculation for Inpatient Prospective Payment System (IPPS) DSH hospitals is not 
appropriate because the Medicare SSI ratio is determined using total Medicare Part A days in the 
denominator, while section 1923(g)(2)(B) of the Act specifies that a hospital must be at least in the 
97th percentile of all hospitals with respect to its percentage of total inpatient days made up of 
The contents of this document do not have the force and effect of law and are not meant to bind the public in any way, 
unless specifically incorporated into a contract. This document is intended only to provide clarity to the public regarding 
existing requirements under the law. 
8  patients who are both entitled to Medicare Part A and entitled to SSI benefits. In addition, the 
Medicare SSI days and ratio information does not include all hospitals that receive Medicaid DSH 
payments, including critical access, rehabilitation, and psychiatric hospitals.  Finally, the Medicare 
SSI days and ratio data as published annually by Medicare is based on the latest available federal 
fiscal year, while the 97th percentile determination under section 1923(g)(2)(B) of the Act is based on 
the hospitals' latest cost reporting periods.  As such, CMS intends to develop a data source to 
determine whether or not hospitals, ranked on a national level, qualify to meet the 97th percentile 
exception, consistent with section 1923(g)(2), as amended.  CMS intends to make this source 
available to states for use in setting DSH payment methodologies.  CMS also intends to release 
additional guidance and engage in future rulemaking as necessary to address this exception.  CMS 
understands states and hospitals will be seeking this additional guidance to comply with the new 
requirements of 1923(g), and that CMCS is committed to issuing updates to states as soon as 
information is available about the updated data source. 
DSH Audit Reporting and Timing for Section 1923 of the Act 
Section 1923(j) of the Act requires states to submit an independent certified audit and an annual 
report to the Secretary containing specified information about DSH payments made to each DSH 
hospital.  The regulation at 42 C.F.R.  455.304(b) requires that DSH audits be submitted to CMS no 
later than the last day of the calendar year ending three years from the end of the Medicaid state plan 
rate year (SPRY) under audit.  The regulation at 42 C.F.R.  447.299 further describes the data 
elements that must be reported as part of state audit submissions.  
Generally, the DSH audits affected by the statutory changes to section 1923(g) of the Act will not be 
due to CMS until the end of 2025, given the three-year lag in DSH audit reporting.  While CMS 
intends to undergo rulemaking to update the regulatory reporting requirements to reflect the statutory 
changes, states should note that the amendments to section 1923(g) of the Act are self-implementing 
and effective October 1, 2021.  As such, states should make necessary system changes and update 
state plan methodologies, including DSH audit redistribution methodologies, to comply with 
statutory requirements for hospital-specific DSH limits.  States should also consider amending their 
state plan to update any hospital-specific limit or Medicaid shortfall definition in cases where existing 
plan language may not be consistent with the amendments to section 1923(g).  Any necessary SPA 
should be submitted by the last day of the SPRY to be effective for the associated SPRY.  CMS is 
committed to providing technical assistance to aid states in determining whether the submission of a 
SPA is necessary. 
We will continue to work with states to ensure the highest level of stewardship for the Medicaid 
program, and know that our state partners are equally committed to this goal.  We expect that our 
further consultations with states and other stakeholders will lead to additional guidance on this topic 
this year. 
Sincerely, 
Daniel Tsai 
Deputy Administrator and Director 
The contents of this document do not have the force and effect of law and are not meant to bind the public in any way, 
unless specifically incorporated into a contract. This document is intended only to provide clarity to the public regarding 
existing requirements under the law. 
9