DEPARTMENT OF HEALTH AND HUMAN SERVICES 

Centers for Medicare & Medicaid Services 

42 CFR Part 447 

[CMS-2367-P] 

RIN 0938-AR31 

Medicaid Program; State Disproportionate Share Hospital Allotment Reductions 

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS. 

ACTION: Proposed rule. 

SUMMARY: The statute, as amended by the Affordable Care Act, requires aggregate 

reductions to state Medicaid Disproportionate Share Hospital (DSH) allotments annually 

from fiscal year (FY) 2014 through FY 2020. This proposed rule delineates a 

methodology to implement the annual reductions for FY 2014 and FY 2015. The rule 

also proposes to add additional DSH reporting requirements for use in implementing the 

DSH health reform methodology. 

DATES: To be assured consideration, comments must be received at one of the 

addresses provided below, no later than 5 p.m. on [OFR--insert date 60 days after the date 

of filing for public inspection at OFR]. 

ADDRESSES: In commenting, please refer to file code CMS-2367-P. Because of staff 

and resource limitations, we cannot accept comments by facsimile (FAX) transmission. 

 You may submit comments in one of four ways (please choose only one of the 

ways listed): 

1. Electronically. You may submit electronic comments on this regulation to 

http://www.regulations.gov. Follow the "Submit a comment" instructions. 

 2. By regular mail. You may mail written comments to the following address 
CMS-2367-P 2 

ONLY: 

 Centers for Medicare & Medicaid Services, 

Department of Health and Human Services, 

Attention: CMS-2367-P, 

P.O. Box 8016, 

Baltimore, MD 21244-8016. 

Please allow sufficient time for mailed comments to be received before the close 

of the comment period. 

3. By express or overnight mail. You may send written comments to the 

following address ONLY: 

 Centers for Medicare & Medicaid Services, 

 Department of Health and Human Services, 

 Attention: CMS-2367-P, 

 Mail Stop C4-26-05, 

 7500 Security Boulevard, 

Baltimore, MD 21244-1850. 

4. By hand or courier. Alternatively, you may deliver (by hand or courier) your 

written comments ONLY to the following addresses prior to the close of the comment 

period: 

a. For delivery in Washington, DC-- 

 Centers for Medicare & Medicaid Services, 

Department of Health and Human Services, 

Room 445-G, Hubert H. Humphrey Building, 

 200 Independence Avenue, SW., 

 Washington, DC 20201 
CMS-2367-P 3 

(Because access to the interior of the Hubert H. Humphrey Building is not readily 

available to persons without Federal government identification, commenters are 

encouraged to leave their comments in the CMS drop slots located in the main lobby of 

the building. A stamp-in clock is available for persons wishing to retain a proof of filing 

by stamping in and retaining an extra copy of the comments being filed.) 

b. For delivery in Baltimore, MD-- 

 Centers for Medicare & Medicaid Services, 

Department of Health and Human Services, 

7500 Security Boulevard, 

Baltimore, MD 21244-1850. 

If you intend to deliver your comments to the Baltimore address, call telephone 

number (410) 786-7195 in advance to schedule your arrival with one of our staff 

members. 

 Comments erroneously mailed to the addresses indicated as appropriate for hand 

or courier delivery may be delayed and received after the comment period. 

 For information on viewing public comments, see the beginning of the 

"SUPPLEMENTARY INFORMATION" section. 

FOR FURTHER INFORMATION CONTACT: 

Rory Howe, (410) 786-4878 and Richard Strauss, (410) 786-2019. 

SUPPLEMENTARY INFORMATION: 

Inspection of Public Comments: All comments received before the close of the comment 

period are available for viewing by the public, including any personally identifiable or 

confidential business information that is included in a comment. We post all comments 

received before the close of the comment period on the following Web site as soon as 

possible after they have been received: http://www.regulations.gov. Follow the search 
CMS-2367-P 4 

instructions on that Web site to view public comments. 

 Comments received timely will also be available for public inspection as they are 

received, generally beginning approximately 3 weeks after publication of a document, at 

the headquarters of the Centers for Medicare & Medicaid Services, 7500 Security 

Boulevard, Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 

a.m. to 4 p.m. To schedule an appointment to view public comments, phone 1-800-743-

3951. 

I. Executive Summary 

A. Purpose 

The statute as amended by the Affordable Care Act sets forth aggregate 

reductions to state Medicaid disproportionate share hospital (DSH) allotments 

annually from fiscal year (FY) 2014 through FY 2020. This proposed rule 

delineates the DSH Health Reform Methodology (DHRM) to implement the 

annual reductions for FY 2014 and FY 2015. 

B. Summary of the Major Provisions

The statute as amended by the Affordable Care Act directs the Secretary to 

implement the annual DSH allotment reductions using a DHRM. This rule proposes to 

amend part 447 by establishing the DHRM. The DHRM incorporates five factors 

identified in the statute. 

C. Costs and Benefits

Taking these five factors into account for each state, the proposed DHRM would 

generate a state-specific DSH allotment reduction amount for FY 2014 and FY 2015. The 

total of all DSH allotment reduction amounts would equal the aggregate annual reduction 

amounts identified in the statute for FY 2014 and FY 2015. To determine the effective 
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annual DSH allotment for each state, the state-specific annual DSH allotment reduction 

amount would be applied to the unreduced DSH allotment amount for its respective state. 

II. Background 

A. Introduction

As a result of the Affordable Care Act, millions of Americans will have access to 

health insurance coverage through qualified health plans offered through Health Insurance 

Exchanges (also called marketplaces) or through the Medicaid program. This increase in 

the number of individuals having access to health insurance is expected to significantly 

reduce levels of uncompensated care provided by hospitals. 

On the assumption that the number of uninsured people will fall sharply beginning 

in 2014, the statute reforms an existing initiative under the Medicaid program to address 

the situation of hospitals which serve a disproportionate share of low income patients and 

therefore may have uncompensated care costs. Under sections 1902(a)(13)(A)(iv) and 

1923 of the Social Security Act (the Act), states are required to make payments to 

qualifying “disproportionate share” hospitals (DSH payments). Section 2551 of the 

Affordable Care Act amended section 1923(f) of the Act, by adding paragraph (7), to 

provide for aggregate reductions in federal funding under the Medicaid program for such 

DSH payments for the 50 states and the District of Columbia. This reform of the DSH 

payment authority is consistent with the reduction of uncompensated care costs 

(particularly those associated with the uninsured) expected to result from the expansion of 

coverage under the statute. 

Section 1923(f)(7)(A)(i) of the Act requires that the Secretary of Health and 

Human Services (the Secretary) implement the aggregate reductions in federal funding for 

DSH payments through reductions in annual state allotments of federal funding for DSH 

payments (state DSH allotments), and accompanying reductions in payments to each 
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state. Since 1998, the amount of federal funding for DSH payments for each state has 

been limited to an annual state DSH allotment in accordance with section 1923(f) of the 

Act. Section 1923(f)(7) of the Act requires the use of a DHRM to determine the 

percentage reduction in each annual state DSH allotment to achieve the required 

aggregate annual reduction in federal DSH funding. 

Section 1923(f)(7)(B) establishes the following five factors that must be 

considered in the development of the DHRM. The methodology must: 

● Impose a smaller percentage reduction on low DSH States; 

● Impose larger percentage reductions on states that have the lowest percentages 

of uninsured individuals during the most recent year for which such data are available; 

● Impose larger percentage reductions on states that do not target their DSH 

payments on hospitals with high volumes of Medicaid inpatients; 

● Impose larger percentage reductions on states that do not target their DSH 

payments on hospitals with high levels of uncompensated care; and 

● Take into account the extent to which the DSH allotment for a state was 

included in the budget neutrality calculation for a coverage expansion approved under 

section 1115 as of July 31, 2009. 

The statutory provision for each factor contains explicit principles, described 

below, to apply when calculating the annual DSH allotment reduction amounts for each 

state through the DHRM. 

B. Legislative History and Overview

The Omnibus Budget Reconciliation Act of 1981(OBRA’81) (Pub. L. 97-35, 

enacted on August 31, 1981) amended section 1902(a)(13) of the Act to require that 

Medicaid payment rates for hospitals “take into account the situation of hospitals that 

serve a disproportionate share of low-income patients with special needs.” Over the more 
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than 30 years since this requirement was first enacted, the Congress has set forth in 

section 1923 of the Act payment targets and limits to implement the requirement and to 

ensure greater oversight, transparency, and targeting of funding to hospitals. 

To qualify as a DSH under section 1923(b) of the Act, a hospital must meet two 

minimum qualifying criteria in section 1923(d) of the Act. The first criterion is that the 

hospital has at least two obstetricians who have staff privileges at the hospital and who 

have agreed to provide obstetric services to Medicaid individuals. This criterion does not 

apply to hospitals in which the inpatients are predominantly individuals under 18 years of 

age or hospitals that do not offer nonemergency obstetric services to the general public as 

of the date of the enactment of the Act. The second criterion is that the hospital has a 

Medicaid inpatient utilization rate of at least 1 percent. 

Under section 1923(b) of the Act, a hospital meeting the minimum qualifying 

criteria in section 1923(d) of the Act is deemed as a DSH if the hospital's Medicaid 

inpatient utilization rate (MIUR) is at least one standard deviation above the mean MIUR 

in the state, or if the hospital’s low-income utilization rate exceeds 25 percent. States 

have the option to define disproportionate share hospitals under the state plan using 

alternative qualifying criteria as long as the qualifying methodology comports with the 

deeming requirements of section 1923(b) of the Act. Subject to certain federal payment 

limits, states are afforded flexibility in setting DSH state plan payment methodologies to 

the extent that these methodologies are consistent with section 1923(c) of the Act. 

 Section 1923(f) of the Act limits federal financial participation (FFP) for total 

statewide DSH payments made to eligible hospitals in each federal FY to the amount 

specified in an annual DSH allotment for each state. Although there have been some 

special rules for calculating DSH allotments for particular years or sets of years, section 

1923(f)(3) establishes a general rule that state DSH allotments are calculated on an annual 
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basis in an amount equal to the DSH allotment for the preceding FY increased by the 

percentage change in the consumer price index for all urban consumers for the previous 

FY. The annual allotment, after the consumer price index increase, is limited to the 

greater of the DSH allotment for the previous year or twelve percent of the total amount 

of Medicaid expenditures under the state plan during the FY. Allotment amounts were 

originally established in the Medicaid Voluntary Contribution and Provider Specific Tax 

Amendments of 1991 based on each state’s historical DSH spending. 

Section 1923(g) of the Act also limits FFP for DSH payments by imposing a 

hospital-specific limit on DSH payments. FFP is not available for DSH payments that 

exceed the hospital’s uncompensated cost of providing inpatient hospital and outpatient 

hospital services to Medicaid patients and the uninsured, minus payments received by the 

hospital by or on the behalf of those patients. 

The statute, as amended by the Affordable Care Act, requires annual aggregate 

reductions in federal DSH funding from FY 2014 through FY 2020. The aggregate 

annual reduction amounts are: 

● $500,000,000 for FY 2014; 

● $600,000,000 for FY 2015; 

● $600,000,000 for FY 2016; 

● $1,800,000,000 for FY 2017; 

● $5,000,000,000 for FY 2018; 

● $5,600,000,000 for FY 2019; and 

● $4,000,000,000 for FY 2020. 

To implement these annual reductions, the statute requires that the Secretary 

reduce annual state DSH allotments, and payments to states, based on a DHRM specified 

in section 1923(f)(7)(B) of the Act. The proposed DHRM relies on the five statutorily 
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identified factors collectively to determine a state-specific DSH allotment reduction 

amount to be applied to the allotment that is calculated under section 1923(f) of the Act 

prior to the reductions under section 1923(f)(7) of the Act. 

C. The Impact of a State’s Decision to Adopt the New Low-Income Adult Coverage 

Group 

The statute provides significant federal financial support for states to extend 

coverage to low-income adults under section 1902(a)(10)(A)(i)(VIII) of the Act. For a 

state that implements the new adult coverage group, the state and its hospitals will receive 

full Medicaid reimbursement for many previously uninsured patients. So on balance, we 

believe both hospitals and States stand to benefit greatly from expanding Medicaid. 

Implementation of the new coverage group is expected to affect the amount of 

uncompensated care and the percentage of uninsured individuals within states. Generally, 

we expect that states that do not implement the new coverage group would have relatively 

higher rates of uninsured, and more uncompensated care, than states that adopt the new 

coverage group. 

Because states that implement the new coverage group would have lower rates of 

uninsurance, the reduction in DSH funding may be greater for such states compared to 

States that do not implement the new coverage group. Consequently, hospitals in states 

implementing the new coverage group that serve Medicaid patients may experience a 

deeper reduction in DSH payments than they would if all states were to implement the 

new coverage group. Given the statutory reductions in the funding for Medicaid DSH in 

the Affordable Care Act, we intend to account for the different circumstances among 

states in the formula in future rulemaking. 

Currently, we do not have sufficient information on the relative impacts that 

would result from state decisions to implement the new coverage group, and thus we have 
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determined to propose a DHRM only for the first two years during which the DSH 

funding reductions are in effect. The data that the reductions are based on for these two 

years will not reflect differential decisions to implement the new coverage group. Data 

reflecting the effects of the decision to implement the new coverage group may not be 

available to consider the impact of such a decision until 2016. Therefore, we intend to 

continue evaluating potential implications for accounting for coverage expansion in the 

DHRM. While we are interested in public comment on this issue, we intend to address 

this issue more completely in separate rulemaking for DSH allotment reductions for FY 

2016 and thereafter. 

Accordingly, we are proposing to establish a DHRM that would be in effect for 

FY 2014 and FY 2015 and we are not including a method to account for differential 

coverage expansions in Medicaid for FY 2014 and FY 2015. 

D. DHRM Data Sources

The statute establishes parameters regarding data and/or suggested data sources 

for specific factors in the development of the DHRM. We are proposing to utilize for the 

DHRM, wherever possible, data sources and metrics that are transparent and readily 

available to CMS, states, and the public, such as: United States Census Bureau data, 

Medicaid DSH data reported as required by section 1923(j) of the Act, existing state DSH 

allotments, and Form CMS-64 Medicaid Budget and Expenditure System (MBES) data. 

We are proposing to utilize the most recent year available for all data sources. For one 

data source, we intend to collect information directly from state Medicaid agencies 

outside of this rule. 

Specifically, we intend for states to submit the information used to determine 

which hospitals are deemed disproportionate share under section 1923(b) of the Act. 

Although we do not currently collect this information because states are required to make 
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DSH payments to hospitals that are DSH eligible, states should have this information 

readily available. To ensure that all hospitals are properly deemed disproportionate share, 

states must determine the mean MIUR for hospitals receiving Medicaid payments in the 

state and the value of one standard deviation above the mean. We are also proposing to 

rely on data derived from Medicaid DSH audit and reporting data. The data is reported 

by states as required by section 1923(j) of the Act and the “Medicaid Disproportionate 

Share Hospital Payments” final rule published on December 19, 2008 (73 FR 77904) (and 

herein referred to as the 2008 DSH final rule) requiring state reports and audits to ensure 

the appropriate use of Medicaid DSH payments and compliance with the DSH limit 

imposed at section 1923(g) of the Act. This is the only comprehensive data source for 

DSH hospitals that identifies hospital-specific DSH payments, hospital-specific 

uncompensated care costs, and hospital-specific Medicaid utilization in a manner 

consistent with Medicaid DSH program requirements. 

To date, we have received rich, comprehensive audit and reporting data from each 

state that makes Medicaid DSH payments. To facilitate the provision of high quality data, 

we provided explicit parameters in the 2008 DSH final rule and associated policy 

guidance for calculating and reporting data elements. The 2008 DSH final rule included a 

transition period in which states and auditors could develop and refine audit and reporting 

techniques. This transition period covered data reported relating to state plan rate years 

2005 through 2010. We recognize that the DSH audit and reporting data during this 

transition period may vary in its quality and accuracy from state to state and have 

considered utilizing alternative uncompensated cost data and Medicaid utilization data 

from sources such as the Medicare Form CMS-2552. The DSH audit and reporting data, 

however, remains the only comprehensive reported data available that is consistent with 

Medicaid program requirements. States are already required to report this data by the last 
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day of the federal fiscal year ending three years from the Medicaid State plan rate year 

under audit as required by the 2008 DSH final rule. However, state submitted audit and 

reporting data is subject to detailed CMS review and may require significant resources to 

ensure that it is compiled and prepared for use in the proposed DHRM. This means that 

the data used for the methodology may not be the most recently submitted data, but 

instead the most recent data available to us in usable form. We have been actively 

engaged in reviewing state audits and reports to ensure quality and accuracy. Consistent 

with ongoing efforts to ensure that the reported data is of the highest quality possible as 

we move through the transition period, we intend to issue additional detailed guidance to 

states by the end of calendar year (CY) 2013 that would be applicable to audits and 

reports due to us by the end of CY 2014. 

As required by the statute, the DHRM must impose the larger percentage DSH 

allotment reductions on the states that have the lowest percentages of uninsured 

individuals. Although other sources of this information could be considered for this 

purpose, the statute explicitly refers to the use of data from the Census Bureau for 

determining the percentage of uninsured for each state. We identified and considered two 

Census Bureau data sources for this purpose, the American Community Survey (ACS); 

and the Annual Social and Economic Supplement to the Current Population Survey 

(CPS). In consultation with the Census Bureau, we are proposing to use the data from the 

ACS for the following reasons. First, the ACS is the largest household survey in the 

United States; in that regard, the annual sample size for the ACS is over 30 times larger 

than that for the CPS - about 3 million for the ACS versus 100 thousand for the CPS. The 

ACS is conducted continuously each month throughout the year, with the sample for each 

month being roughly 1/12th of the annual total, while the CPS is conducted in the first 

four months following the end of the survey year. Finally, although the definition of 
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uninsured and insured status is the same for the ACS and the CPS, the CPS considers the 

respondents as uninsured if they are uninsured at any time during the year whereas the 

ACS whether the respondent has coverage at the time of the interview, which are 

conducted at various times throughout the year. For these reasons, and with the 

recommendation of the Census Bureau, we determined that the ACS is the appropriate 

source for establishing the percentage of uninsured for each state for purpose of the 

proposed DHRM. 

In addition to Census Bureau data, we considered using various alternative data 

with different population parameters and/or different definitions of uninsured individuals. 

We are also considering adjusting the definition of the uninsured for reductions applicable 

for FY 2016 and beyond reductions through separate rulemaking. 

III. Provisions of the Proposed Rule 

A. DHRM Overview

The statute requires aggregate annual reduction amounts for FY 2014 through FY 

2020 to be reduced through a DHRM designed by the Secretary consistent with the 

statutorily-established factors. Taking these factors into account for each state, the 

proposed DHRM would generate a state-specific DSH allotment reduction amount for FY 

2014 and FY 2015 for all 50 states and DC. The total of all DSH allotment reduction 

amounts would equal the aggregate annual reduction amounts identified in the Affordable 

Care Act for FY 2014 and FY 2015. To determine the effective annual DSH allotment 

for each state, the state-specific annual DSH allotment reduction amount would be 

applied to the unreduced DSH allotment amount for its respective state. 

We would calculate an unreduced DSH allotment for each state prior to the 

beginning of each FY, as we do currently. This unreduced allotment is determined by 

calculating the allotment in section 1923(f) of the Act prior to the application of the 
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DHRM under section 1923(f)(7) of the Act. The unreduced allotment would serve as the 

base amount for each state to which the state-specific DSH allotment reduction amount 

would apply annually. In this proposed rule, we are utilizing estimated unreduced DSH 

allotments for FY 2014 for illustrative purposes. 

We propose to apply the DHRM to the unreduced DSH allotment amount on an 

annual basis for FY 2014 and FY 2015. Under the DHRM, we consider the five factors 

identified in the statute to determine each state’s annual state-specific annual DSH 

allotment reduction amount. Limitations on the availability of data relating to some of the 

five factors affect the calculation and, therefore, we are seeking comment regarding 

readily available data sources that may be useful. 

The proposed DHRM utilizes available data and a series of interacting 

calculations that result in the identification of state-specific reduction amounts that, when 

summed, equal the aggregate DSH allotment reduction amount identified by the statute 

for each applicable year. The proposed DHRM accomplishes this through the following 

summarized steps: 

1. Separate states into two state groups, non-low DSH states and low-DSH states. 

2. Proportionately allocate aggregate DSH funding reductions to each of these 

two state groups based on each state group’s total unreduced DSH allotment amount. 

3. Apply a Low DSH State Percentage Reduction Factor to adjust each state 

group’s DSH funding reduction amount while maintaining the combined aggregate DSH 

funding reduction. 

4. Divide each state group’s DSH allotment reduction amount among three 

statutorily identified factors, the Uninsured Percentage Factor (UPF), the High Level of 

Uncompensated Care Factor (HUF), and the High Volume of Medicaid Inpatients Factor 

(HMF). We are proposing to assign a 33 and 1/3 percent weight to the UPF and a 66 and 
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2/3 percent combined weight for the two DSH payment targeting factors (a 33 and 1/3 

percent weight for the HUF, and a 33 and 1/3 percent weight for the HMF). This weight 

assignment provides a higher weight to the DSH payment targeting requirements than the 

UPF. We considered various alternative weight assignments prior to proposing equal 

weights. We could have assigned a 50 percent weight to the UPF, and a 50 percent 

combined weight for the two DSH payment targeting factors (25 percent for the HUF and 

25 percent for the HMF). This weight assignment would have provided an equal weight 

to the requirement at 1923(f)(7)(B)(i)(I) of the Act and the requirement at 

1923(f)(7)(B)(i)(II) of the Act. We also could have assigned an even lower weight to the 

uninsured factor than the payment targeting factors, or lower weights to the payment 

targeting factors than the uninsured factor. We also could have assigned no weight to the 

uninsured factor or no weight to the targeting factors. We are seeking public comment 

and input regarding alternate assignments. We also seek comments on how these weights 

would impact specific hospital types. 

5. For each state group, determine state-specific DSH allotment reduction 

amounts relating to the Uninsured Percentage Factor. 

6. For each state group, determine state-specific DSH allotment reduction 

amounts relating to the High Level of Uncompensated Care Factor. 

7. For each state group, determine state-specific DSH allotment reduction 

amounts relating to the High Volume of Medicaid Inpatients Factor. 

8. Apply a section 1115 Budget Neutrality Factor for each qualifying state. 

9. Identify the state-specific DSH allotment reduction amount. 

10. Subtract each state’s state-specific DSH allotment reduction amount from each 

state’s unreduced DSH allotment. 

The manner in which each of the five factors are considered and calculated in the 
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proposed DHRM is described in greater detail below. 

The proposed DHRM recognizes the variations in the development of DSH 

allotments among states and the application of the methodology generates a lesser impact 

on low DSH states. Further, the proposed DHRM is designed to lessen the impact on 

states that have targeted DSH payments to hospitals that have high volumes of Medicaid 

inpatients and to hospitals that have high levels of uncompensated care. Concurrently, the 

proposed DHRM is designed to incentivize states to target current and future DSH 

payments to hospitals that have higher volumes of Medicaid inpatients and to hospitals 

that have higher levels of uncompensated care relative to all DSH eligible hospital in a 

state. The proposed DHRM also takes into account the extent to which the DSH 

allotment for a state was included in part or in whole in the budget neutrality calculation 

for a coverage expansion approved under section 1115 as of July 31, 2009 by excluding 

from DSH allotment reduction the amount of DSH that qualifying states continue to 

divert specifically for coverage expansion in the budget neutrality calculation. Any 

amount of DSH diverted for other purposes under the demonstration would still be subject 

to reduction by automatically assigning qualifying states an average percentage reduction 

amount for factors for which the state does not have complete and/or relevant DSH 

payment data. 

B. Factor 1 – Low DSH Adjustment Factor (LDF)

The first factor considered in the proposed DHRM is the Low DSH Adjustment 

Factor identified at section 1923(f)(7)(B)(ii) of the Act, which requires that the DHRM 

impose a smaller percentage reduction on “low DSH states” that meet the criterion 

described in section 1923(f)(5)(B) of the Act in 2003. To qualify as a low DSH state, 

total expenditures under the state plan for DSH payments for FY 2000, as reported to us 

as of August 31, 2003, had to have been greater than zero but less than 3 percent of the 
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state’s total Medicaid state plan expenditures during the FY. Historically, low DSH states 

(identified in Table 1) have received lower DSH allotments relative to their total 

Medicaid expenditures than non-low DSH states. 

We propose to apply the Low DSH Adjustment Factor (LDF) by imposing a 

greater proportion of the annual DSH funding reduction on non-low DSH states. The 

factor is calculated and applied as follows: 

1. Separate states into two groups, non-low DSH states and low-DSH states. 

2. Divide each state’s unreduced preliminary DSH allotment for the year for 

which the reduction is calculated by estimated Medicaid service expenditures for that 

same year. Currently, we create a preliminary DSH allotment based on the estimates 

available in August of the prior year and we issue a final DSH allotment once the federal 

FY ends. 

3. For each state group, calculate the non-weighted mean of the value calculated 

in step 2 for states in the group. 

4. Divide the average calculated in step 3 for the low DSH state group by the 

average calculated in step 3 for the non-low DSH state group. 

5. Convert this number to a percentage. This percentage is the LDF. 

6. Multiply the proportionately allocated DSH funding reductions for the lowDSH state group by the LDF percentage to determine the aggregate DSH reduction 

amount that would be distributed across the low DSH state group. 

7. Subtract the aggregate DSH reduction amount determined in step 6 from the 

proportionately allocated DSH funding reduction for the low-DSH state group, and add 

the remainder to the aggregate DSH reduction amount that would be distributed across the 

non-low DSH state group. 

We considered using various alternative proportional relationships to establish the LDF, 
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including the proportion of each state group’s annual Medicaid DSH expenditures to total 

Medicaid expenditures. 

C. Factor 2 – Uninsured Percentage Factor (UPF)

The second factor considered in the proposed DHRM is the Uninsured Percentage 

Factor (UPF) identified at section 1923(f)(7)(B)(i)(I) of the Act, which requires that the 

DHRM impose larger percentage DSH allotment reductions on states that have the lowest 

percentages of uninsured individuals. The statute also requires that the percentage of 

uninsured individuals is determined on the basis of data from the Census Bureau, audited 

hospital cost reports, and other information likely to yield accurate data, during the most 

recent year for which such data are available. 

To determine the percentage of uninsured individuals in each state, the proposed 

DHRM relies on the total population and uninsured population as identified in the most 

recent “1-year estimates” data available from the ACS conducted by the Census Bureau. 

The Census Bureau generates ACS “1-year estimates” data annually based on a point-intime survey of approximately 3 million individuals. For purposes of the proposed 

DHRM, we would utilize the most recent ACS data available at the time of the calculation 

of the annual DSH allotment reduction amounts. 

The UPF, as applied through the proposed DHRM, has the effect of imposing 

lower relative DSH allotment reductions on states that have the highest percentage of 

uninsured individuals. The UPF would mitigate the DSH reduction for states with the 

highest percentage of uninsured individuals. 

The proposed UPF is determined separately for each state group (low DSH and 

non-low DSH) as follows: 

1. Uninsured Value – Using Bureau of Census data, calculate each state’s 

uninsured value by dividing the total state population by the uninsured in the state. (This 
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is different than the percentage rate of uninsurance; the rate of uninsurance can be 

obtained by dividing 100 by this number) 

2. Uninsured Allocation Component – Determine the relative uninsured value for 

each state compared to other states in the state group by dividing the value in step one by 

the state group total of step one values. The result should be a percentage, and the total of 

the percentages for all states in the state group should total 100 percent. 

3. Allocation Weighting Factor – To ensure that larger and smaller states are 

given fair weight in the final UPF, divide each state’s preliminary unreduced DSH 

allotment by the sum of all unreduced preliminary DSH allotments in the respective state 

group to obtain allocation weighting factor, expressed as a percentage. The sum of all 

weighting factors should equal 100 percent. Then, take this percentage for each state and 

multiply it by the state’s uninsured allocation component determined in step 2. The result 

is the allocation weighting factor. 

4. For each state group, divide each state’s allocation weighting factor by the 

sum of all allocation weighting factors. The resulting percentage is the UPF. 

 We would determine the UPF portion of the final aggregate DSH allotment 

reduction allocation for each state by multiplying the state’s UPF by the aggregate DSH 

allotment reduction allocated to the UPF factor for the respective state group. As with the 

prior factor, we propose to utilize preliminary DSH allotment estimates to develop the 

DSH reduction factors. 

D. Factor 3 – High Volume of Medicaid Inpatients Factor (HMF)

The third factor considered in the proposed DHRM is the High Volume of 

Medicaid Inpatients Factor (HMF) identified at section 1923(f)(7)(B)(i)(II)(aa) of the Act, 

which requires that the DHRM impose larger percentage DSH allotment reductions on 

states that do not target DSH payments to hospitals with the highest volumes of Medicaid 
CMS-2367-P 20 

inpatients. For purposes of the DHRM, the statute defines hospitals with high volumes of 

Medicaid patients as those defined in section 1923(b)(1)(A) of the Act. These hospitals 

must meet minimum qualifying requirements at section 1923(d) of the Act and have an 

MIUR that is at least one standard deviation above the mean MIUR for hospitals 

receiving Medicaid payments in the state. Every hospital that meets that definition is 

deemed a disproportionate share hospital and is statutorily required to receive a DSH 

payment. The HMF, through the proposed DHRM, provides the mitigation of the DSH 

reduction amount for states that have been targeting and would in the future target DSH 

payments to these federally deemed hospitals. 

 States that have been, and continue to, target a large percentage of their DSH 

payments to hospitals that are federally deemed as a DSH based on their MIUR would 

receive the lowest reduction amounts relative to their total spending. States that target the 

largest amounts of DSH payments to hospitals that are not federally deemed based on 

MIUR would receive larger reduction amounts under this factor. The current DSH 

allotment amounts are unrelated to the amounts of MIUR-deemed hospitals and their 

DSH-eligible uncompensated care costs. By basing the HMF reduction on the amounts 

that states do not target to hospitals with high volumes of Medicaid inpatients, this 

proposed methodology incentivizes states to target DSH payments to such hospitals. 

To ensure that all deemed disproportionate share hospitals receive a required DSH 

payments, states are already required to determine the mean MIUR for hospitals receiving 

Medicaid payments in the state and the value of one standard deviation above the mean. 

This rule proposes to rely on MIUR information for use in the DHRM that CMS intends 

to collect from states on an annual basis outside of this rule. When a state does not timely 

submit this separately required MIUR information, for purposes of this factor, CMS will 

assume that the state has the highest value of one standard deviation above the mean 
CMS-2367-P 21 

reported among all other states. 

The calculation of the HMF would rely on extant data that should be readily 

available to states. The following data elements are used in the HMF calculation: the 

preliminary unreduced DSH allotment for each state, the DSH hospital payment amount 

reported for each DSH in accordance with §447.299(c)(17), the MIUR for each DSH 

reported in accordance with §447.299(c)(3), and the value of one standard deviation 

above the mean MIUR for hospitals receiving Medicaid payments in the state reported 

separately. 

 The proposed HMF is a state-specific percentage that is calculated separately for 

each state group (low DSH and non-low DSH) as follows: 

1. For each state, classify each disproportionate share hospital that has an MIUR 

at least one standard deviation above the mean MIUR for hospitals receiving Medicaid 

payments in the state as a High Medicaid Volume hospital. 

2. For each state, determine the amount of DSH payments to non-High Medicaid 

Volume DSH hospitals. This data element should come from the most recently submitted 

and accepted DSH audit template. 

3. For each state, determine a percentage by dividing the state’s total DSH 

payments made to non-High Medicaid Volume hospitals by the aggregate amount of DSH 

payments made to non-High Medicaid Volume hospitals for the entire state group. 

4. The result of step 3 is the HMF. 

We would determine each state’s HMF reduction amount by applying the HMF 

percentage to the aggregate reduction amount allocated to this factor for each state group. 

As a result of this methodology, there are a number of interactions that may occur 

for states among DSH payment methodologies, DSH allotments, and DSH allotment 

reductions. Most of these scenarios work in concert with this factor’s established 
CMS-2367-P 22 

reduction relationship. For example, if a state paid out its entire DSH allotment to 

hospitals with high volumes of Medicaid inpatients, it would receive no reduction 

associated with this factor because all DSH payments were made only to hospitals that 

qualify as high volume. The results of this scenario would be consistent with the 

methodology because the state is incentivized to target DSH payments to high Medicaid 

volume hospitals. 

Another example is a state that makes DSH payments up to the hospital-specific 

DSH limit to all hospitals with high Medicaid volume but also uses its remaining 

allotment to make DSH payments to hospitals that do not qualify as high volume. In this 

example, the state would receive a reduction under this factor based on the amount of 

DSH payments it made to non-high Medicaid volume hospitals. Though the state targeted 

DSH payments to hospitals with high Medicaid volume, the existing size of its DSH 

allotment permitted it to make DSH payments to hospitals that did not meet the statutory 

definition of high Medicaid volume. In that situation, this allotment reduction would 

effectively reduce a state’s existing DSH allotment to the extent that the allotment 

exceeded the maximum amount that the state could pay to hospitals that are high 

Medicaid volume. The resulting HMF reduction would be greater for states with DSH 

allotments large enough to pay significant amounts to non-high Medicaid volume 

hospitals. This ensures that states target DSH payments to high Medicaid volume 

hospitals and distribute the reductions in such a way as to promote the ability of all states 

to provide DSH funds to high Medicaid volume hospitals. 

We would continue to analyze the proposed DHRM and comments to the 

proposed rule to ensure that the DHRM is effective in tying the level of DSH reductions 

to the targeting of DSH payments to high Medicaid volume hospitals. 

E. Factor 4 – High Level of Uncompensated Care Factor (HUF)
CMS-2367-P 23 

The fourth factor considered in the DHRM is the HUF identified at section 

1923(f)(7)(B)(i)(II)(bb) of the Act, which requires that the DHRM impose larger 

percentage DSH allotment reductions on states that do not target DSH payments on 

hospitals with high levels of uncompensated care. We are proposing to rely on the 

existing statutory definition of uncompensated care cost used in determining the hospitalspecific limit on FFP for DSH payments. 

Each state must develop a methodology to compute this hospital-specific limit for 

each DSH hospital in the state. As defined in section 1923(g)(1) of the Act, the state’s 

methodology must calculate for each hospital, for each FY, the difference between the 

costs incurred by that hospital for furnishing inpatient hospital and outpatient hospital 

services during the applicable state FY to Medicaid individuals and individuals who have 

no health insurance or other source of third party coverage for the inpatient hospital and 

outpatient hospital services they receive, less all applicable revenues for these hospital 

services. This difference, if any, between incurred inpatient hospital and outpatient 

hospital costs and associated revenues is considered a hospital’s uncompensated care cost 

limit, or hospital-specific DSH limit. 

For purposes of this rule, we are proposing to rely on this definition of 

uncompensated cost for the calculation of the HUF, as reported by states on the most 

recent available DSH audit and reporting data. For the proposed DHRM, hospitals with 

high levels of uncompensated care are defined based on a comparison with other 

Medicaid DSH hospitals in their state. Any hospital that exceeds the mean ratio of 

uncompensated care costs to total Medicaid and uninsured inpatient and outpatient 

hospital service costs within its state is considered a hospital with a high level of 

uncompensated care. This data is consistent with existing Medicaid DSH program 

definition of uncompensated care and is readily available to states and us. 
CMS-2367-P 24 

The following data elements are used in the HUF calculation: 

● The preliminary unreduced DSH allotment for each state; 

● DSH hospital payment amounts reported for each DSH in accordance with 

§447.299(c)(17); 

● Uncompensated care cost amounts reported for each DSH in accordance with 

§447.299(c)(16); 

● Total Medicaid cost amounts reported for each DSH in accordance with 

§447.299(c)(10); and 

● Total uninsured cost amounts reported for each DSH in accordance with 

§447.299(c)(14). 

The statute also requires that uncompensated care used in this factor of the DHRM 

exclude bad debt. The proposed rule relies on the uncompensated care cost data derived 

from Medicaid DSH audit and reporting required by section 1923(f) of the Act and 

implementing regulations. This uncompensated care data excludes bad debt, including 

unpaid co-pays and deductibles, associated with individuals with a source of third party 

coverage for the service received during the year. 

The HUF is a state-specific percentage that is calculated separately for each state 

group (low DSH and non-low DSH) as follows: 

1. Determine each disproportionate share hospital’s Uncompensated Care Level 

by dividing its uncompensated care cost by the sum of its total Medicaid cost and its total 

uninsured cost. This data element would come from the most recently submitted and 

accepted DSH audit template. 

2. For each state, calculate the weighted mean Uncompensated Care Level. 

3. Identify all hospitals that meet or exceed the mean Uncompensated Care Level 

as High Uncompensated Care Level hospitals. We also considered identifying a metric 
CMS-2367-P 25 

higher than the mean for purposes of identifying hospitals as High Uncompensated Care 

Level hospitals and are soliciting comments on this alternative. 

4. For each state, determine the amount of DSH payments to non-High 

Uncompensated Care Level hospitals. 

5. For each state, determine a percentage by dividing the state’s total DSH 

payments made to non-High Uncompensated Care Level hospitals by the aggregate 

amount of DSH payments made to non-High Uncompensated Care Level hospitals for the 

entire state group. The result is the HUF. 

We would determine each state’s HUF reduction amount by applying the HUF 

percentage to the aggregate reduction amount allocated to this factor for each state group. 

Similar to the HMF, this methodology may produce a number of interactions that could 

occur for states among DSH payment methodologies, DSH allotments, and DSH 

allotment reductions. Most of these interactions work in concert with the intent of this 

factor’s established reduction relationship. However, we have identified some potential 

scenarios where the interactions may be inconsistent with the methodology. For example, 

it is possible that a hospital may not be considered to have a high level of uncompensated 

care even though it provides a higher percentage of services to Medicaid and uninsured 

individuals and has a greater total qualifying uncompensated care costs than another 

hospital that does qualify as having a high level of uncompensated care. Specifically, 

Hospital A has $20 million in total hospital costs, $11 million in DSH-eligible Medicaid 

and uninsured costs, and $5 million in uncompensated care cost. Hospital B has $50 

million in total hospital costs, $2 million in DSH-eligible Medicaid and uninsured costs, 

and $1 million in uncompensated care cost. Assuming the weighted mean 

uncompensated care cost level in the state is 50 percent, Hospital B would be considered 

to have high level of uncompensated care and Hospital A would not. Given that Hospital 
CMS-2367-P 26 

A has 5 times the total uncompensated care of Hospital B and serves a much higher 

percentage of Medicaid and uninsured individuals, the results of this scenario are counter 

to the intent of the methodology. 

This scenario exists because the proposed formula does not take into account total 

hospital costs due to extant data limitations. To address this concern, we are proposing to 

modify DSH reporting requirements to collect total hospital cost from Medicare cost 

report data for all DSH hospitals. Through separately issued rulemaking for FY 2016 and 

thereafter, we intend to substitute total cost for the denominator in step one of the HUF 

calculation above. Since total cost is unavailable at this time, we are seeking comment on 

alternatives to the use of total uncompensated care cost as the denominator to alleviate 

this data issue. 

We would continue to analyze the proposed DHRM and comments to the 

proposed rule to ensure that the DHRM is effective in tying the level of DSH reductions 

to the targeting of DSH payments to hospitals with high levels of uncompensated care. 

We believe that the proposed methodology, in using the mean uncompensated care cost 

level as the measure to identify hospitals with high levels of uncompensated care, 

captures the best balance in tying the level of DSH reductions to the targeting of DSH 

payments to such high level hospitals. Understanding potential data limitations and that 

the proposed methodology does not precisely distinguish how states direct DSH payments 

among hospitals that are identified as at or above the mean uncompensated care, we 

solicit comments on alternative methodologies regarding state targeting of DSH payments 

to hospitals with high levels of uncompensated care. 

F. Factor 5 – Section 1115 Budget Neutrality Factor (BNF)

The statute requires that we take into account the extent to which a state’s DSH 

allotment was included in the budget neutrality calculation for a coverage expansion that 
CMS-2367-P 27 

was approved under section 1115 as of July 31, 2009. Prior to the implementation of this 

proposed rule, these states possess full annual DSH allotments as calculated under section 

1923(f) of the Act. Under an approved section 1115 demonstration, however, the states 

may have limited authority to make DSH payments under section 1923 of the Act because 

all or a portion of their DSH allotment was included in the budget neutrality calculation 

for a coverage expansion under an approved section 1115 demonstration or to fund 

uncompensated care pools and/or safety net care pools. For applicable states, DSH 

payments under section 1923 of the Act are limited to the DSH allotment calculated under 

section 1923(f) of the Act less the allotment amount included in the budget neutrality 

calculation. If a state’s entire DSH allotment is included in the budget neutrality 

calculation, it would have no available DSH funds with which to make DSH payments 

under section 1923 of the Act for the period of the demonstration. 

Consistent with the statute, for states that include DSH allotment in budget 

neutrality calculations for coverage expansion under an approved section 1115 

demonstration as of July 31, 2009, we propose to exclude from DSH allotment reduction, 

for the HMF and the HUF factors, the amount of DSH allotment that each state currently 

continues to divert specifically for coverage expansion in the budget neutrality 

calculation. Amounts of DSH allotment included in budget neutrality calculations for 

non-coverage expansion purposes under approved demonstrations would still be subject 

to reduction. Uncompensated care pools and safety net care pools are considered noncoverage expansion purposes. For section 1115 demonstrations not approved as of July 

31, 2009, any DSH allotment amounts included in budget neutrality calculations, whether 

for coverage expansion or otherwise, under a later approval would also be subject to 

reduction. 

We are proposing to determine for each reduction year if any portion of a state’s 
CMS-2367-P 28 

DSH allotment qualifies for consideration under this factor. To qualify annually, CMS 

and the state would have to have included its DSH allotment in the budget neutrality 

calculation for a coverage expansion that was approved under section 1115 as of 

July 31, 2009, and would have to continue to do so at the time that reduction amounts are 

calculated for each FY. 

The proposed DHRM would take into account the extent to which the DSH 

allotment for a state was included in the budget neutrality calculation approved under 

section 1115 as of July 31, 2009 by excluding amounts diverted specifically for a 

coverage expansion and automatically assigning qualifying states an average reduction 

amount (based on the state group) for any DSH allotment diverted for non-coverage 

expansion purposes and any amounts diverted for coverage expansion if the section 1115 

demonstration was or is approved after July 31, 2009. DSH allotment reductions relating 

to two DHRM factors (the HUF and the HMF) are determined based on how states target 

DSH payments to certain hospitals. Since states qualifying under the budget neutrality 

provision would have limited or no relevant data for these two factors, we would be 

unable to evaluate how they spent the portion of their DSH allotment that was diverted for 

non-coverage expansion. Accordingly, we are proposing to maintain the HUF and HMF 

formula for DSH payments for which qualifying states would have available data. 

Because we would not have DSH payment data for DSH allotment amounts diverted for 

non-coverage expansion, we are proposing to assign average HUF and HMF reduction 

percentages for the portion of their DSH allotment that they were unable to use to target 

payments to disproportionate share hospitals. Instead of assigning the average percentage 

reduction to non-qualifying amounts, we considered using various alternative 

percentages. Additionally, for qualifying allotment amounts diverted specifically for 

coverage expansion, we considered applying the BNF reduction exclusion to the UPF in 
CMS-2367-P 29 

addition to the HMF and HUF. We are seeking comment regarding the use of different 

percentages for the reductions to non-qualifying diversion amounts and regarding 

alternative BNF methodologies that may prove preferable alternatives. 

We recognize that the goal of the expanded coverage and/or payment of 

uncompensated care is directly addressed by the statute. The goal is addressed by statute 

by offering states other, non-DSH funds for such expansions, thus limiting the need for 

the diverted DSH under demonstrations. Accordingly, the group of states affected by this 

factor today may change at a later time, depending on how their coverage continues to be 

financed. In addition, based on changes in the health coverage landscape, we will 

reevaluate this policy in future rulemaking. 

G. Illustration of DSH Health Reform Methodology (DHRM)

 Table 1 and the values contained therein are provided only for purposes of 

illustrating the application of the DHRM and the associated DSH reduction factors 

described in this proposed rule to determine each states’ DSH allotment reduction for FY 

2014. Note that these values do not represent the final DSH reduction amounts for FY 

2014.
CMS-2367-P 30 

TABLE 1: 

*FOR ILLUSTRATION PURPOSES ONLY - FY 2014 DSH HEALTH REFORM METHODOLOGY 

ILLUSTRATIVE DSH Reduction Factor Weighting Allocation* 

Total Reduction: 

Uninsured 

Factor UPF 

Hi Volume Factor 

HMF 

High Level Factor 

HUF TOTAL 

33.3% 33.3% 33.3% 100.0% 

Total Reg. DSH 

Reduction: $164,588,883 $164,588,883 $164,588,883 $493,766,649 

LOW DSH Adj. Factor Total Low DSH Reduction: $2,077,784 $2,077,784 $2,077,784 $6,233,351 

27.97% TOTAL: $166,666,667 $166,666,667 $166,666,667 $500,000,000 

A B C D E F G 

Unreduced Reduction Based on Reduction Based on Reduction Based Reduc

Amo

STATE FY 2014 UPF HMF On HUF Total Reduction* As Percen

DSH Allotment Uninsured Factor* High Volume Factor* High Level Factor* of Unred

(Estimate)* DS

Allotm

Col J, UPF WS Col O , HMF WS Col O, HUC WS C + D + E F/

Alabama $327,306,706 $4,450,693 $6,450,832 $5,965,703 $16,867,229 5Arkansas $107,771,720 $1,225,578 $2,320,621 $4,144,131 $7,690,330 7California $1,166,861,709 $12,496,019 $19,339,288 $787,771 $32,623,078 2Colorado $98,458,114 $1,227,835 $953,242 $3,262,103 $5,443,181 5Connecticut $212,882,410 $4,646,855 $4,209,148 $4,474,769 $13,330,772 6District of Columbia /1 $65,195,237 $1,703,076 $463,119 $844,089 $3,010,283 4Florida $212,882,410 $1,987,539 $2,887,967 $5,215,949 $10,091,455 4Georgia $286,060,738 $2,882,526 $3,130,957 $5,060,927 $11,074,410 3Illinois $228,848,590 $3,298,528 $3,645,082 $3,899,617 $10,843,227 4Indiana $227,518,076 $3,045,530 $3,282,746 $1,280,446 $7,608,722 3Kansas $43,906,997 $627,702 $922,471 $683,318 $2,233,492 5Kentucky $154,339,747 $2,009,128 $2,429,559 $2,068,748 $6,507,436 4Louisiana $731,960,000 $8,157,359 $12,281,637 $4,906,454 $25,345,450 3
CMS-2367-P 31 

*FOR ILLUSTRATION PURPOSES ONLY - FY 2014 DSH HEALTH REFORM METHODOLOGY 

ILLUSTRATIVE DSH Reduction Factor Weighting Allocation* 

Total Reduction: 

Uninsured 

Factor UPF 

Hi Volume Factor 

HMF 

High Level Factor 

HUF TOTAL 

33.3% 33.3% 33.3% 100.0% 

Total Reg. DSH 

Reduction: $164,588,883 $164,588,883 $164,588,883 $493,766,649 

LOW DSH Adj. Factor Total Low DSH Reduction: $2,077,784 $2,077,784 $2,077,784 $6,233,351 

27.97% TOTAL: $166,666,667 $166,666,667 $166,666,667 $500,000,000 

A B C D E F G 

Unreduced Reduction Based on Reduction Based on Reduction Based Reduc

Amo

STATE FY 2014 UPF HMF On HUF Total Reduction* As Percen

DSH Allotment Uninsured Factor* High Volume Factor* High Level Factor* of Unred

(Estimate)* DS

Allotm

Col J, UPF WS Col O , HMF WS Col O, HUC WS C + D + E F/

Maine /1 $111,763,265 $2,189,425 $1,324,174 $2,413,463 $5,927,063 5Maryland $81,161,419 $1,430,089 $1,639,479 $1,726,902 $4,796,470 5Massachusetts /1 $324,645,675 $14,612,915 $1,031,865 $1,076,550 $16,721,329 5Michigan $282,069,193 $4,528,369 $3,256,081 $5,661,017 $13,445,466 4Mississippi $162,322,837 $1,771,408 $1,928,694 $715,775 $4,415,876 2Missouri $504,265,209 $7,606,111 $7,179,807 $11,117,502 $25,903,421 5Nevada $49,229,057 $432,077 $226,353 $258,039 $916,469 1New Hampshire $170,410,795 $3,039,010 $2,714,290 $2,903,827 $8,657,127 5New Jersey $685,215,257 $10,273,222 $9,989,871 $9,086,087 $29,349,180 4New York $1,709,711,855 $28,517,869 $17,330,775 $19,682,882 $65,531,526 3North Carolina $314,001,555 $3,717,078 $6,628,232 $3,952,052 $14,297,361 4Ohio $432,417,395 $6,970,234 $6,496,637 $9,942,522 $23,409,393 5Pennsylvania $597,401,262 $11,667,972 $9,874,704 $12,323,972 $33,866,647 5Rhode Island $69,186,783 $1,128,516 $1,332,369 $1,002,242 $3,463,128 5South Carolina $348,594,946 $3,947,977 $5,769,094 $3,995,248 $13,712,319 3
CMS-2367-P 32 

*FOR ILLUSTRATION PURPOSES ONLY - FY 2014 DSH HEALTH REFORM METHODOLOGY 

ILLUSTRATIVE DSH Reduction Factor Weighting Allocation* 

Total Reduction: 

Uninsured 

Factor UPF 

Hi Volume Factor 

HMF 

High Level Factor 

HUF TOTAL 

33.3% 33.3% 33.3% 100.0% 

Total Reg. DSH 

Reduction: $164,588,883 $164,588,883 $164,588,883 $493,766,649 

LOW DSH Adj. Factor Total Low DSH Reduction: $2,077,784 $2,077,784 $2,077,784 $6,233,351 

27.97% TOTAL: $166,666,667 $166,666,667 $166,666,667 $500,000,000 

A B C D E F G 

Unreduced Reduction Based on Reduction Based on Reduction Based Reduc

Amo

STATE FY 2014 UPF HMF On HUF Total Reduction* As Percen

DSH Allotment Uninsured Factor* High Volume Factor* High Level Factor* of Unred

(Estimate)* DS

Allotm

Col J, UPF WS Col O , HMF WS Col O, HUC WS C + D + E F/

Tennessee $54,007,000 $746,901 $860,219 $920,288 $2,527,408 4Texas $1,017,844,022 $8,522,124 $18,255,733 $29,359,012 $56,136,869 5Vermont $23,949,271 $590,875 $434,558 $276,383 $1,301,816 5Virginia $93,250,559 $1,416,841 $1,718,425 $1,230,356 $4,365,622 4Washington $196,916,230 $2,744,350 $3,136,466 $3,355,484 $9,236,300 4West Virginia $71,847,813 $977,152 $1,144,386 $995,254 $3,116,792 4

Total Regular DSH 

States $11,164,203,854 $164,588,883 $164,588,883 $164,588,883 $493,766,649 4

LOW DSH STATES Alaska $21,681,747 $51,937 $173,996 $87,475 $313,408 1Arizona $45,916,375 $129,368 $129,235 $42,155 $300,758 0Delaware $9,636,331 $47,282 $0 $0 $47,282 0Hawaii $10,393,800 $62,676 $70,765 $104,311 $237,752 2Idaho $17,496,274 $46,880 $111,960 $50,217 $209,057 1
CMS-2367-P 33 

*FOR ILLUSTRATION PURPOSES ONLY - FY 2014 DSH HEALTH REFORM METHODOLOGY 

ILLUSTRATIVE DSH Reduction Factor Weighting Allocation* 

Total Reduction: 

Uninsured 

Factor UPF 

Hi Volume Factor 

HMF 

High Level Factor 

HUF TOTAL 

33.3% 33.3% 33.3% 100.0% 

Total Reg. DSH 

Reduction: $164,588,883 $164,588,883 $164,588,883 $493,766,649 

LOW DSH Adj. Factor Total Low DSH Reduction: $2,077,784 $2,077,784 $2,077,784 $6,233,351 

27.97% TOTAL: $166,666,667 $166,666,667 $166,666,667 $500,000,000 

A B C D E F G 

Unreduced Reduction Based on Reduction Based on Reduction Based Reduc

Amo

STATE FY 2014 UPF HMF On HUF Total Reduction* As Percen

DSH Allotment Uninsured Factor* High Volume Factor* High Level Factor* of Unred

(Estimate)* DS

Allotm

Col J, UPF WS Col O , HMF WS Col O, HUC WS C + D + E F/

Iowa $41,917,760 $214,084 $75,590 $115,863 $405,536 0Minnesota $79,499,739 $416,944 $257,348 $623,061 $1,297,353 1Montana $12,081,903 $33,172 $68,731 $89,562 $191,465 1Nebraska $30,120,968 $124,314 $238,785 $249,312 $612,411 2New Mexico $21,681,747 $52,589 $168,797 $52,617 $274,003 1North Dakota $10,167,243 $49,497 $60,321 $13,300 $123,117 1Oklahoma $38,545,326 $97,193 $110,492 $391,760 $599,445 1Oregon $48,181,658 $133,619 $381,129 $9,220 $523,968 1South Dakota $11,756,055 $45,126 $70,228 $36,545 $151,899 1Utah $20,881,618 $64,735 $159,292 $211,938 $435,965 2Wisconsin /1 $100,621,875 $507,599 $0 $0 $507,599 0Wyoming $240,907 $768 $1,115 $448 $2,331 0

Total Low DSH States $520,821,329 $2,077,784 $2,077,784 $2,077,784 $6,233,351 1
CMS-2367-P 34 

*FOR ILLUSTRATION PURPOSES ONLY - FY 2014 DSH HEALTH REFORM METHODOLOGY 

ILLUSTRATIVE DSH Reduction Factor Weighting Allocation* 

Total Reduction: 

Uninsured 

Factor UPF 

Hi Volume Factor 

HMF 

High Level Factor 

HUF TOTAL 

33.3% 33.3% 33.3% 100.0% 

Total Reg. DSH 

Reduction: $164,588,883 $164,588,883 $164,588,883 $493,766,649 

LOW DSH Adj. Factor Total Low DSH Reduction: $2,077,784 $2,077,784 $2,077,784 $6,233,351 

27.97% TOTAL: $166,666,667 $166,666,667 $166,666,667 $500,000,000 

A B C D E F G 

Unreduced Reduction Based on Reduction Based on Reduction Based Reduc

Amo

STATE FY 2014 UPF HMF On HUF Total Reduction* As Percen

DSH Allotment Uninsured Factor* High Volume Factor* High Level Factor* of Unred

(Estimate)* DS

Allotm

Col J, UPF WS Col O , HMF WS Col O, HUC WS C + D + E F/

National Total $11,685,025,183 $166,666,667 $166,666,667 $166,666,667 $500,000,000 4

Notes: *All of the values on this chart are only for purposes of illustrating the DSH Health Reform Methodology (DHRM) /1 Potential DSH Diversion State 
CMS-2367-P 35 

IV. Collection of Information Requirements 

 Under the Paperwork Reduction Act of 1995, we are required to provide 60-day 

notice in the Federal Register and solicit public comment before a collection of 

information requirement is submitted to the Office of Management and Budget (OMB) 

for review and approval. In order to fairly evaluate whether an information collection 

should be approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act of 

1995 requires that we solicit comment on the following issues: 

● The need for the information collection and its usefulness in carrying out the 

proper functions of our agency. 

● The accuracy of our estimate of the information collection burden. 

● The quality, utility, and clarity of the information to be collected. 

● Recommendations to minimize the information collection burden on the 

affected public, including automated collection techniques. 

To derive average costs, we used data from the U.S. Bureau of Labor Statistics for 

all salary estimates. The salary estimates include the cost of fringe benefits, based on the 

December 2012 Employer Costs for Employee Compensation report by the Bureau. 

 We are soliciting public comment on each of the section 3506(c)(2)(A)-required 

issues for the following information collection requirements (ICRs): 

ICRs Regarding Reporting Requirements (§447.299)

 Beginning with each state’s Medicaid state plan rate year 2005, for each Medicaid 

state plan rate year, the state must submit to CMS, at the same time as it submits the 

completed DSH audit required under §455.204, the following information for each DSH 

hospital to which the state made a DSH payment in order to permit verification of the 

appropriateness of such payments. 
CMS-2367-P 36 

The ongoing burden associated with the requirements under §447.299 is the time 

and effort it would take each of the 50 state Medicaid Programs and the District of 

Columbia to complete the annual Medicaid DSH reporting requirements. Based on the 

information proposed in this rule, we estimate that it would take an additional 4 hours per 

state (from 38 approved hr to 42 total hr) to complete the DSH reporting spreadsheets. 

Consequently, we also estimate an additional 204 (4 x 51) annual hours for all states and 

the District of Columbia (or 2,142 total hr) and an additional cost of $10,404 (or $85,434 

total). 

In deriving these figures, we used the following hourly labor rates and estimated 

the time to complete each task: $51.00/hr and an additional 102 hr (1,071 total hours) for 

management and professional staff to review and prepare reports, and $28.77/hr and an 

additional 102 hr (1,071 total hours) for office staff to prepare the reports. 

 The preceding requirements and burden estimates will be added to the existing 

PRA-related requirements and burden estimates that have been approved by OMB under 

OCN 0938-0746 (CMS-R-266). The revised total burden estimates amount to: 51 annual 

respondents, 51 annual responses, and 2,142 annual hours. 

Submission of PRA-Related Comments

 We have submitted a copy of this proposed rule to OMB for its review of the 

rule’s information collection and recordkeeping requirements. These requirements are 

not effective until they have been approved by the OMB. 

 To obtain copies of the supporting statement and any related forms for the 

proposed paperwork collections referenced above, access CMS’ Web site at 

http://www.cms.hhs.gov/Paperwork@cms.hhs.gov, or call the Reports Clearance Office 

at 410–786–1326. 
CMS-2367-P 37 

 We invite public comments on these potential information collection 

requirements. If you comment on these information collection and recordkeeping 

requirements, please do either of the following: 

 1. Submit your comments electronically as specified in the ADDRESSES section 

of this proposed rule; or 

 2. Submit your comments to the Office of Information and Regulatory Affairs, 

Office of Management and Budget, Attention: CMS Desk Officer, (CMS–2367–P) Fax: 

(202) 395–6974; or E-mail: OIRA_submission@omb.eop.gov. 

V. Response to Comments

Because of the large number of public comments we normally receive on Federal 

Register documents, we are not able to acknowledge or respond to them individually. 

We will consider all comments we receive by the date and time specified in the "DATES" 

section of this preamble, and, when we proceed with a subsequent document, we will 

respond to the comments in the preamble to that document.

VI. Regulatory Impact Statement 

A. Statement of Need 

The Affordable Care Act amended the Act by requiring aggregate reductions to 

state Medicaid DSH allotments annually from FY 2014 through FY 2020. This proposed 

rule delineates the DHRM to implement the annual reductions for FY 2014 and FY 2015. 

B. Overall Impact 

We have examined the impact of this rule as required by Executive Order 12866 

on Regulatory Planning and Review (September 30, 1993), Executive Order 13563 on 

Improving Regulation and Regulatory Review (January 18, 2011), the Regulatory 

Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), section 1102(b) of the Act, 

section 202 of the Unfunded Mandates Reform Act of 1995 (March 22, 1995; 
CMS-2367-P 38 

Pub. L. 104-4), Executive Order 13132 on Federalism (August 4, 1999) and the 

Congressional Review Act (5 U.S.C. 804(2). 

Executive Orders 12866 and 13563 direct agencies to assess all costs and benefits 

of available regulatory alternatives and, if regulation is necessary, to select regulatory 

approaches that maximize net benefits (including potential economic, environmental, 

public health and safety effects, distributive impacts, and equity). This rule has been 

designated an “economically significant” rule measured by the $100 million threshold, 

under section 3(f)(1) of Executive Order 12866. Accordingly, we have prepared a 

Regulatory Impact Analysis (RIA) that, to the best of our ability, presents the costs and 

benefits of the rulemaking. In accordance with the provisions of Executive Order 12866, 

this regulation was reviewed by the Office of Management and Budget. 

Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also 

requires that agencies assess anticipated costs and benefits before issuing any rule whose 

mandates require spending in any 1 year of $100 million in 1995 dollars, updated 

annually for inflation. In 2013, that threshold is approximately $141 million. This final 

rule would not mandate any requirements for State, local, or tribal governments, nor 

would it affect private sector costs. 

Executive Order 13132 establishes certain requirements that an agency must meet 

when it promulgates a proposed rule (and subsequent final rule) that imposes substantial 

direct requirement costs on State and local governments, preempts State law, or otherwise 

has Federalism implications. Since this rule does not impose any costs on State or local 

governments, the requirements of Executive Order 13132 are not applicable. 

The RFA requires agencies to analyze options for regulatory relief of small 

entities. For purposes of the RFA, small entities include small businesses, nonprofit 

organizations, and small governmental jurisdictions. Most hospitals and most other 
CMS-2367-P 39 

providers and suppliers are small entities, either by nonprofit status or by having revenues 

of $7.0 million to $34.5 million in any 1 year. Individuals and states are not included in 

the definition of a small entity. 

We are not preparing an analysis for the RFA because we have determined, and 

the Secretary certifies, that this proposed rule would not have a significant economic 

impact on a substantial number of small entities. 

In addition, section 1102(b) of the Act requires us to prepare a regulatory impact 

analysis if a rule may have a significant impact on the operations of a substantial number 

of small rural hospitals. This analysis must conform to the provisions of section 603 of 

the RFA. For purposes of section 1102(b) of the Act, we define a small rural hospital as a 

hospital that is located outside of a Metropolitan Statistical Area for Medicare payment 

regulations and has fewer than 100 beds. We are not preparing an analysis for section 

1102(b) of the Act because we have determined, and the Secretary certifies, that this 

proposed rule would not have a significant impact on the operations of a substantial 

number of small rural hospitals. 

Executive Order 13132 establishes certain requirements that an agency must meet 

when it issues a proposed rule (and subsequent final rule) that imposes substantial direct 

requirement costs on state and local governments, preempts state law, or otherwise has 

Federalism implications. Since this regulation does not impose any costs on state or local 

governments, the requirements of Executive Order 13132 are not applicable. 

This proposed rule may be of interest to, and affect, American Indians/Alaska 

Natives. Therefore, we plan to consult with Tribes during the comment period and prior 

to publishing a final rule. 

C. Anticipated Effects

1. Effects on State Medicaid Programs 
CMS-2367-P 40 

We anticipate, effective for FY 2014, that the proposed DSH allotment reductions 

would have a direct effect on the ability for some or all states to maintain state-wide 

Medicaid DSH payments at FY 2013 levels. Federal share DSH allotments, which are 

published by CMS in an annual Federal Register notice, limit the amount of federal 

financial participation (FFP) in the aggregate that states can pay annually in DSH 

payments to hospitals. This proposed rule would reduce state DSH allotment amounts 

and would, therefore, limit the states’ ability to make DSH payments and claim FFP for 

DSH payments at FY 2013 levels. By statute, the rule would reduce state DSH allotments 

by $500,000,000 for FY 2014 and $600,000,000 for FY 2015. We anticipate that the rule 

would reduce total federal financial participation claimed by states by similar amounts, 

although it may not equal the exact amount of the allotment reductions. Due to the 

complexity of the interaction among the proposed DHRM methodology, state DSH 

allotments, DHRM data, future state DSH payment levels and methodologies for FY 2014 

and FY 2015, we cannot provide a specific estimate of the total federal financial impact 

for each year. 

The proposed rule utilizes a DHRM that would mitigate the negative impact on 

states that continue to have high percentages of uninsured and are targeting DSH 

payments on hospitals that have a high volume of Medicaid inpatient and on hospitals 

with high levels of uncompensated care. 

2. Effects on Providers 

We anticipate that the final rule would affect certain providers through the 

reduction of state DSH payments. We cannot, however, estimate the impact on individual 

providers or groups of providers. This proposed rule would not affect the considerable 

flexibility afforded states in setting DSH state plan payment methodologies to the extent 

that these methodologies are consistent with section 1923(c) of the Act and all other 
CMS-2367-P 41 

applicable statute and regulations. States would retain the ability to preserve existing 

DSH payment methodologies or to propose modified methodologies by submitting state 

plan amendments to us. Some states may determine that implementing a proportional 

reduction in DSH payments for all qualifying hospitals is the preferred method to account 

for the reduced allotment. Alternatively, states could determine that it the best action is to 

propose a methodology that would direct DSH payments reductions to hospitals that do 

not have high Medicaid volume and do not have high levels of uncompensated care. 

Regardless, the rule incentivizes states to target DSH payments to hospitals that are most 

in need of Medicaid DSH funding based on their serving a high volume of Medicaid 

inpatient and having a high level of uncompensated care. 

This proposed rule also does not affect the calculation of the hospital-specific 

DSH limit established at section 1923(g) of the Act. This hospital-specific limit requires 

that Medicaid DSH payments to a qualifying hospital not exceed the costs incurred by 

that hospital for providing inpatient and outpatient hospital services furnished during the 

year to Medicaid patients and individuals who have no health insurance or other source of 

third party coverage for the services provided during the year, less applicable revenues for 

those services. 

Although this rule would reduce state DSH allotments, the management of the 

reduced allotments still largely remains with the states. Given that states would retain the 

same flexibility to design DSH payment methodologies under the state plan and that 

individual hospital DSH payment limits would not be reduced, we cannot predict whether 

and how states would exercise their flexibility in setting DSH payments to account for 

their reduced DSH allotment and how this would affect individual providers or specific 

groups of providers. 

D Alternatives Considered 
CMS-2367-P 42 

The Affordable Care Act specifies the annual DSH allotment reduction amounts 

for FY 2014 and FY 2015. Therefore, we were unable to consider alternative reduction 

amounts. Alternatives to the proposed DHRM methodology are discussed through the 

preceding section of this rule. 

E. Accounting Statement and Table 

As required by OMB Circular A-4 (available at 

http://www.whitehouse.gov/omb/circulars_a004_a-4/), we have prepared an accounting 

statement table showing the classification of the impacts associated with implementation 

of this proposed rule. 

TABLE 2: Accounting Statement 

Units 

Category Estimates Year Dollar Discount Rate 

Period 

Covered 

Transfers 

-548 2013 7% 2014 - 2015 

Annualized 

Reductions in 

Disproportionate 

Share Hospital 

Allotment (in 

millions) 

-549 2013 3% 2014 - 2015 

From Whom to 

Whom 

Federal Government to the States due to assumed reduced number of 

uninsured and uncompensated care. 
CMS-2367-P 43 

List of Subjects in 42 CFR Part 447 

Accounting, Administrative practice and procedure, Drugs, Grant programshealth, Health facilities, Health professions, Medicaid, Reporting and recordkeeping 

requirements, Rural areas. 
CMS-2367-P 44 

For the reasons set forth in the preamble, the Centers for Medicare & Medicaid 

Services proposes to amend 42 CFR chapter IV as set forth below: 

PART 447 —PAYMENTS FOR SERVICES 

1. The authority citation for part 447 continues to read as follows: 

Authority: Sec. 1102 of the Social Security Act (42 U.S.C. 1302). 

Subpart E—Payment Adjustments for Hospitals That Serve a Disproportionate 

Number of Low-Income Patients 

 2. Section 447.294 is added to read as follows: 

§447.294 Medicaid disproportionate share hospital (DSH) allotment reductions for 

Federal fiscal year 2014 and Federal fiscal year 2015. 

 (a) Basis and purpose. This section sets forth the DSH health reform 

methodology (DHRM) for calculating State-specific annual DSH allotment reductions 

from Federal fiscal year 2014 and Federal fiscal year 2015 as required under section 

1923(f) of the Act. 

 (b) Definitions. For purposes of this section-- 

Aggregate DSH allotment reductions mean the amounts identified in section 

1923(f)(7)(A)(ii) of the Act. 

Budget neutrality factor (BNF) is a factor incorporated in the DHRM that takes 

into account the extent to which the DSH allotment for a State was included in the budget 

neutrality calculation for a coverage expansion approved under section 1115 as of 

July 31, 2009. 

DSH payment means the amount reported in accordance with §447.299(c)(17). 

 Effective DSH allotment means the amount of DSH allotment determined by 

subtracting the State-specific DSH allotment from a State’s unreduced DSH allotment. 
CMS-2367-P 45 

High level of uncompensated care factor (HUF) is a factor incorporated in the 

DHRM that results in larger percentage DSH allotment reduction for States that do not 

target DSH payments on hospitals with high levels of uncompensated care. 

High Medicaid volume hospital means a disproportionate share hospital that has 

an MIUR at least one standard deviation above the mean MIUR for hospitals receiving 

Medicaid payments in the State.

High uncompensated care hospital means a hospital that exceeds the mean ratio of 

uncompensated care costs to total Medicaid and uninsured inpatient and outpatient 

hospital service costs for all disproportionate share hospitals within a state. 

 High volume of Medicaid inpatients factor (HMF) is a factor incorporated in the 

DHRM that results in larger percentage DSH allotment reduction for States that do not 

target DSH payments on hospitals with high volumes of Medicaid inpatients. 

Hospital with high volumes of Medicaid inpatients means a disproportionate 

share hospital that meets the requirements of section 1923(b)(1)(A) of the Act. 

 Low DSH adjustment factor (LDF) is a factor incorporated in the DHRM that 

results in a smaller percentage DSH allotment reduction on low DSH States. 

 Low DSH State means a State that meets the criterion described in section 

1923(f)(5)(B) of the Act. 

Mean HUF reduction percentage is the mean of each State within a State group’s 

quotient of its HUF reduction dividing by its unreduced DSH allotment. 

Medicaid inpatient utilization rate (MIUR) means the rate defined in section 

1923(b)(2) of the Act. 

Non-high Medicaid volume hospital means a disproportionate share hospitals 

that does not meet the requirements of section 1923(b)(1)(A) of the Act. 

 State group means similarly situated States that are collectively identified by 
CMS-2367-P 46 

DHRM. 

State-specific DSH allotment reduction means the amount of annual DSH 

allotment reduction for a particular State as determined by the DHRM. 

 Total Medicaid cost means the amount reported in accordance with 

§447.299(c)(10). 

 Total population means the 1-year estimates data of the total noninstitutionalized population identified by United States Census Bureau’s American 

Community Survey. 

Total uninsured cost means the amount reported for each DSH in accordance with 

§447.299(c)(14). 

Uncompensated care cost means the amount reported in accordance with 

§447.299(c)(16). 

Uncompensated care level means a hospital’s uncompensated care cost divided by 

the sum of its total Medicaid cost and its total uninsured cost. 

 Uninsured percentage factor (UPF) is a factor incorporated in the DHRM that 

results in larger percentage DSH allotment reductions for States that have the lowest 

percentages of uninsured individuals.

Uninsured population means 1-year estimates data of the number of uninsured 

identified by United States Census Bureau’s American Community Survey. 

 Unreduced DSH allotment means the DSH allotment calculated under section 

1923(f) of the Act prior to annual reductions under this section. 

 (c) Aggregate DSH allotment reduction amounts. The aggregate DSH allotment 

reduction amounts are as provided in section 1923(f)(7)(A)(ii) of the Act. 

(d) State data submission requirements. States are required to submit the mean 

MIUR, determined in accordance with section 1923(b)(1)(A) of the Act, for all hospitals 
CMS-2367-P 47 

receiving Medicaid payments in the State and the value of one standard deviation above 

such mean. The State must provide this data to CMS by June 30 of each year identified in 

paragraph (c) of this section. 

(e) DHRM methodology. Section 1923(f)(7) of the Act requires aggregate annual 

reduction amounts for FY 2014 and FY 2015 to be reduced through the DHRM. The 

DHRM is calculated on an annual basis based on the most recent data available to CMS at 

the time of the calculation. The DHRM is determined as follows: 

(1) Establishing State groups. For each FY, CMS will separate low-DSH States 

and non-low DSH states into distinct State groups. 

(2) Aggregate DSH allotment reduction allocation. CMS will allocate a portion of 

the aggregate DSH allotment reductions to each State group by the following: 

(i) Dividing the sum of each State group’s preliminary unreduced DSH allotments 

by the sum of both State groups’ preliminary unreduced DSH allotment amounts to 

determine a percentage. 

(ii) Multiplying the value of paragraph (e)(2)(i) of this section by the aggregate 

DSH allotment reduction amount under paragraph (c) of this section for the applicable 

fiscal year. 

(iii) Applying the low DSH adjustment factor under paragraph (e)(3) of this 

section. 

(3) Low DSH adjustment factor (LDF) calculation. CMS will calculate the LDF 

by the following: 

(i) Dividing each State’s preliminary unreduced DSH allotment by their respective 

total Medicaid service expenditures for the applicable year. 

(ii) Calculating for each State group the mean of all values determined in 

paragraph (e)(3)(i) of this section. 
CMS-2367-P 48 

(iii) Dividing the value of paragraph (e)(3)(ii) of this section for the low-DSH 

State group by the value of paragraph (e)(3)(ii) for the non-low DSH state group. 

(4) LDF application. CMS will determine the final aggregate DSH allotment 

reduction allocation for each State group through application of the LDF by the 

following: 

(i) Multiplying the LDF by the aggregate DSH allotment reduction for the low 

DSH State group. 

(ii) Utilizing the value of paragraph (e)(4)(i) of this section as the aggregate DSH 

allotment reduction allocated to the low DSH State group. 

(iii) Subtracting the value of paragraph (e)(4)(ii) of this section from the value of 

paragraph (e)(2)(ii) of this section for the low DSH State group; and (iii) adding the value 

of paragraph (e)(4)(iii) of this section to the value of paragraph (e)(2)(ii) of this section 

for the non-low DSH State group. 

(5) Reduction factor allocation. CMS will allocate the aggregate DSH allotment 

reduction amount to three core factors by multiply the aggregate DSH allotment reduction 

amount for each State group by the following: 

(i) UPF – 33 and 1/3 percent. 

(ii) HMF – 33 and 1/3 percent. 

(iii) HUF – 33 and 1/3 percent. 

(6) Uninsured percentage factor (UPF) calculation. CMS will calculate the UPF 

by the following: 

(i) Dividing the total State population by the uninsured in State for each State. 

(ii) Determining the uninsured reduction allocation component for each State as a 

percentage by dividing each State’s value of paragraph (e)(6)(i) of this section by the sum 

of the values of paragraph (e)(6)(i) of this section for the respective State group (the sum 
CMS-2367-P 49 

of the values of all States in the State group should total 100 percent). 

(iii) Determine a weighting factor by dividing each State’s unreduced DSH 

allotment by the sum of all preliminary unreduced DSH allotments for the respective 

State group. 

(iv) Multiply the weighting factor calculated in paragraph (e)(6)(iii) of this section 

by the value of each State’s uninsured reduction allocation component from paragraph 

(e)(6)(ii) of this section. 

(v) Determine the UPF as a percentage by dividing the product of paragraph 

(e)(6)(iv) of this section for each State by the sum of the values of paragraph (e)(6)(iv) of 

this section for the respective State group (the sum of the values of all States in the State 

group should total 100 percent). 

(7) UPF application and reduction amount. CMS will determine the UPF portion 

of the final aggregate DSH allotment reduction allocation for each State by multiplying 

the State’s UPF by the aggregate DSH allotment reduction allocated to the UPF factor 

under paragraph (e)(5) of this section for the respective State group. 

(8) High volume of Medicaid inpatients factor (HMF) calculation. CMS will 

calculate the HMF by determining a percentage for each State by dividing the State’s total 

DSH payments made to non-high Medicaid volume hospitals by the total of such 

payments for the entire State group. 

(9) HMF application and reduction amount. CMS will determine the HMF 

portion of the final aggregate DSH allotment reduction allocation for each State by 

multiplying the State’s HMF by the aggregate DSH allotment reduction allocated to the 

HMF factor under paragraph (e)(5) of this section for the respective State group. 

(10) High level of uncompensated care factor (HUF) calculation. CMS will 

calculate the HMF by determining a percentage for each State by dividing the State’s total 
CMS-2367-P 50 

DSH payments made to non-High Uncompensated Care Level hospitals by the total of 

such payments for the entire State group.

(11) HUF application and reduction amount. CMS will determine the HUF 

portion of the final aggregate DSH allotment reduction allocation by multiplying each 

State’s HUF by the aggregate DSH allotment reduction allocated to the HUF factor under 

paragraph (e)(5) of this section for the respective State group. 

(12) Section 1115 budget neutrality factor (BNF) calculation. This factor is only 

calculated for States for which all or a portion of the DSH allotment was included in the 

calculation of budget neutrality under a section 1115 demonstration for the specific fiscal 

year subject to reduction pursuant to an approval on or before July 31, 2009. CMS will 

calculate the BNF for qualifying states by the following: 

(i) For States whose DSH allotment was included in the budget neutrality 

calculation for a coverage expansion that was approved under section 1115 as of 

July 31, 2009, (without regard to approved amendments since that date) determining the 

amount of the State’s DSH allotment included in the budget neutrality calculation for 

coverage expansion for the specific fiscal year subject to reduction. This amount is not 

subject to reductions under the HMF and HUF calculations. 

(ii) Determining the amount of the State’s DSH allotment included in the budget 

neutrality calculation for non-coverage expansion purposes for the specific fiscal year 

subject to reduction. 

(iii) Multiplying each qualifying State’s value of paragraph (e)(10)(ii) of this 

section by the mean HMF reduction percentage for the respective State group. 

(iv) Multiplying each qualifying State’s value of paragraph (e)(10)(ii) of this 

section by the mean HUF reduction percentage for the respective State group. 

(v) For each State, calculating the sum of the value of paragraphs (e)(10)(iii) and 
CMS-2367-P 51 

of (e)(10)(iv) of this section. 

(13) Section 1115 budget neutrality factor (BNF) application. This factor will be 

applied in the State-specific DSH allotment reduction calculation. 

(14) State-specific DSH allotment reduction calculation. CMS will calculate the 

state-specific DSH reduction by the following: 

(i) Taking the sum of the value of paragraphs (e)(7), (e)(9), and (e)(11) of this 

section for each State. 

(ii) For States qualifying under paragraph (e)(12) of this section, adding the value 

of paragraph (e)(12)(v) of this section. 

(iii) Reducing the amount of paragraph (e)(14)(i) of this section for each State 

that does not qualify under paragraph (e)(12)(v) based on the proportion of each State’s 

preliminary unreduced DSH allotment compared to the national total of preliminary 

unreduced DSH allotments so that the sum of paragraph (e)(14)(iii) of this section equals 

the sum of paragraph (e)(12)(v) of this section. 

(f) Annual DSH allotment reduction application. For each fiscal year identified in 

paragraph (c) of this section, CMS will subtract the State-specific DSH allotment amount 

determined in paragraph (e)(14) of this section from that State’s final unreduced DSH 

allotment. This amount is the State’s final DSH allotment for the fiscal year.

 3. Section 447.299 is amended by adding paragraphs (c)(19), (c)(20) and (c)(21) 

to read as follows: 

§447.299 Reporting requirements. 

* * * * * 

 (c)* * * 

 (19) Medicaid provider number. 

 (20) Medicare provider number. 
CMS-2367-P 52 

 (21) Total hospital cost. The total annual costs incurred by each hospital for 

furnishing inpatient hospital and outpatient hospital services. 

* * * * * 
CMS-2367-P 

(Catalog of Federal Domestic Assistance Program No. 93.778, Medical Assistance 

Program) 

Dated: April 26, 2013.

 ________________________________ 

 Marilyn Tavenner, 

 Acting Administrator, 

 Centers for Medicare & Medicaid 

 Services. 

Approved: ______________ 

 _________________________________ 

 Kathleen Sebelius, 

 Secretary, 

 Department of Health and Human

 Services. 

BILLING CODE 4120-01-P
CMS-2367-P 54 

[FR Doc. 2013-11550 Filed 05/13/2013 at 11:15 am; Publication Date: 

05/15/2013]