II 

118TH CONGRESS 

1ST SESSION S. 407 

To amend title XIX of the Social Security Act to establish a methodology 

for determining State allotments for Medicaid disproportionate share 

hospital payments that is based on State poverty levels, to require States 

to prioritize disproportionate share hospital payments on the basis of 

Medicaid inpatient utilization and low-income utilization rates, and for 

other purposes. 

IN THE SENATE OF THE UNITED STATES 

FEBRUARY 14, 2023 

Mr. RUBIO introduced the following bill; which was read twice and referred 

to the Committee on Finance 

A BILL 

To amend title XIX of the Social Security Act to establish 

a methodology for determining State allotments for Medicaid disproportionate share hospital payments that is 

based on State poverty levels, to require States to 

prioritize disproportionate share hospital payments on 

the basis of Medicaid inpatient utilization and low-income 

utilization rates, and for other purposes. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 


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1 SECTION 1. SHORT TITLE. 

2 This Act may be cited as the ‘‘State Accountability, 

3 Flexibility, and Equity for Hospitals Act of 2023’’ or the 

4 ‘‘SAFE Hospitals Act of 2023’’. 

5 SEC. 2. DETERMINATION OF STATE DSH ALLOTMENTS 

6 BASED ON STATE POVERTY LEVELS. 

7 Section 1923(f) of the Social Security Act (42 U.S.C. 

8 1396r–4(f)) is amended— 

9 (1) in paragraph (3)— 

10 (A) in the paragraph heading, by striking 

11 ‘‘YEAR 2003 AND THEREAFTER’’ and inserting 

12 ‘‘YEARS 2003 THROUGH 2025’’; 

13 (B) in subparagraph (A)— 

14 (i) by striking ‘‘, (7), and (8)’’ and in15 serting ‘‘and (7)’’; and 

16 (ii) by inserting ‘‘through fiscal year 

17 2025’’ after ‘‘each succeeding fiscal year’’; 

18 (C) in subparagraph (C)(ii), by inserting 

19 ‘‘through fiscal year 2025’’ after ‘‘each suc20 ceeding fiscal year’’; and 

21 (D) in subparagraph (E)(i)(III), by insert22 ing ‘‘or paragraph (7), as applicable,’’ after 

23 ‘‘this paragraph’’; 

24 (2) in paragraph (4)(C), by inserting ‘‘or para25 graph (7), as applicable,’’ after ‘‘paragraph (3)’’; 

26 (3) in paragraph (5)(B)— 


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1 (A) in the subparagraph heading, by strik2 ing ‘‘AND SUBSEQUENT FISCAL YEARS’’ and in3 serting ‘‘THROUGH FISCAL YEAR 2025’’; and 

4 (B) in clause (iii), by inserting ‘‘through 

5 fiscal year 2025’’ after ‘‘any subsequent fiscal 

6 year’’; 

7 (4) in clause (iii) of paragraph (6)(B)— 

8 (A) in the clause heading, by inserting 

9 ‘‘THROUGH FISCAL YEAR 2025’’ after ‘‘SUC10 CEEDING FISCAL YEARS’’; and 

11 (B) in subclause (II)— 

12 (i) in the subclause heading, by insert13 ing ‘‘THROUGH FISCAL YEAR 2025’’ after 

14 ‘‘SUCCEEDING FISCAL YEARS’’; and 

15 (ii) by inserting ‘‘through fiscal year 

16 2025’’ after ‘‘each fiscal year thereafter’’; 

17 (5) by striking paragraphs (7) and (8) and in18 serting the following: 

19 ‘‘(7) STATE DSH ALLOTMENTS FOR FISCAL

20 YEARS AFTER FISCAL YEAR 2025.— 

21 ‘‘(A) IN GENERAL.—Subject to subpara22 graphs (B), (C), and (D), beginning with fiscal 

23 year 2026, the DSH allotment for a State and 

24 fiscal year shall be the amount equal to the 

25 product of— 


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1 ‘‘(i) the State poverty ratio (as deter2 mined under subparagraph (E)(ii)) for the 

3 State and fiscal year; and 

4 ‘‘(ii) the DSH allotment cap (as de5 termined under subparagraph (E)(i)) for 

6 the fiscal year. 

7 ‘‘(B) PHASE-IN OF POVERTY-BASED FOR8 MULA.— 

9 ‘‘(i) IN GENERAL.—During the period 

10 of fiscal years described in clause (ii), the 

11 Secretary shall phase in the application of 

12 the determination of DSH allotments 

13 under subparagraph (A) in a manner that 

14 ensures that— 

15 ‘‘(I) in no case is the DSH allot16 ment for a State for a fiscal year dur17 ing such period less than 90 percent 

18 of the DSH allotment for the State 

19 for the previous fiscal year (without 

20 regard to whether the State used the 

21 full amount of the DSH allotment for 

22 the previous fiscal year); and 

23 ‘‘(II) the total amount of DSH 

24 allotments made to all States for any 

25 fiscal year during such period does 


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1 not exceed the DSH allotment cap de2 termined for the fiscal year under 

3 subparagraph (E)(i). 

4 ‘‘(ii) PHASE-IN PERIOD.—The period 

5 of fiscal years described in this clause is 

6 the period that begins with fiscal year 

7 2026 and ends with— 

8 ‘‘(I) fiscal year 2035; or 

9 ‘‘(II) at the Secretary’s discre10 tion, any of fiscal years 2036 through 

11 2040. 

12 ‘‘(iii) DEVELOPMENT OF METHOD13 OLOGY.—The Secretary shall promulgate 

14 final regulations that establish the method15 ology for determining State DSH allot16 ments under clause (i) not later than Jan17 uary 1, 2025. 

18 ‘‘(C) STATE ALLOTMENT FLEXIBILITY OP19 TION.— 

20 ‘‘(i) IN GENERAL.—A State may elect 

21 to increase or reduce the amount of the 

22 DSH allotment for the State and a fiscal 

23 year (as otherwise determined under this 

24 paragraph) for the purpose of providing 

25 certainty or more consistent DSH funding 


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1 in subsequent fiscal years in accordance 

2 with this subparagraph. 

3 ‘‘(ii) STATE OPTION TO RESERVE AL4 LOTMENT AMOUNTS.—For any fiscal year 

5 after fiscal year 2025, a State may request 

6 that the DSH allotment for the State and 

7 fiscal year (as otherwise determined under 

8 this paragraph) be reduced by an amount 

9 that shall not exceed 10 percent of the 

10 amount of the allotment as so determined. 

11 ‘‘(iii) STATE OPTION TO INCREASE

12 DSH ALLOTMENT FROM ALLOTMENT RE13 SERVE.—For any fiscal year after fiscal 

14 year 2026, a State may request that the 

15 DSH allotment for the State and fiscal 

16 year (as otherwise determined under this 

17 paragraph) be increased by an amount 

18 that shall not exceed the DSH reserve 

19 amount for the State and fiscal year. 

20 ‘‘(iv) DSH RESERVE AMOUNT.— 

21 ‘‘(I) IN GENERAL.—Subject to 

22 subclause (II), the DSH reserve 

23 amount for a State and fiscal year 

24 shall be equal to the sum of the 

25 amounts, if any, of any reductions to 


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1 the State’s DSH allotment (as other2 wise determined under this para3 graph) made in each of the preceding 

4 5 fiscal years pursuant to a request 

5 under clause (ii). 

6 ‘‘(II) SUBTRACTION OF IN7 CREASES FROM DSH RESERVE

8 AMOUNT.—The amount of any in9 crease to a State’s DSH allotment for 

10 a fiscal year made pursuant to a re11 quest under clause (iii) shall be sub12 tracted from the State’s DSH reserve 

13 amount for such year and shall not be 

14 available to the State in subsequent 

15 fiscal years. 

16 ‘‘(III) RULE OF APPLICATION.— 

17 In the case of an increase to a State’s 

18 DSH allotment for a fiscal year that 

19 is less than the State’s DSH reserve 

20 amount for such year, the Secretary 

21 shall apply subclause (II) in a manner 

22 that maximizes the DSH reserve 

23 amount that will remain available to 

24 the State in subsequent fiscal years. 


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1 ‘‘(v) DISREGARD OF ADJUSTMENTS.— 

2 Any increase or reduction under this sub3 paragraph to the DSH allotment of a 

4 State for a fiscal year shall be disregarded 

5 when otherwise determining State DSH al6 lotments under this paragraph. 

7 ‘‘(D) TREATMENT OF WAIVERS.— 

8 ‘‘(i) IN GENERAL.—Subject to clause 

9 (ii), with respect to a State and a fiscal 

10 year, if the State has in effect on the date 

11 of enactment of the SAFE Hospitals Act 

12 of 2023 a statewide waiver of requirements 

13 of this title under section 1115 or other 

14 law and any part of the fiscal year occurs 

15 during the period of the waiver (as ap16 proved as of such date), the DSH allot17 ment determined under this paragraph for 

18 such State and fiscal year shall not be less 

19 than the DSH allotment that would have 

20 been determined for such State and fiscal 

21 year under this section as in effect on the 

22 day before the date of enactment of the 

23 SAFE Hospitals Act of 2023, reduced, in 

24 the case of each of fiscal years 2026 

25 through 2029, by the amount of the 


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1 State’s share of the reductions which 

2 would have been applicable for the fiscal 

3 year under paragraph (7) of this sub4 section (as so in effect), as estimated by 

5 the Secretary. 

6 ‘‘(ii) TOTAL ALLOTMENTS NOT TO EX7 CEED DSH ALLOTMENT CAP.—The Sec8 retary shall apply this subparagraph in 

9 such a manner that the total amount of 

10 DSH allotments determined for all States 

11 for a fiscal year under this paragraph does 

12 not exceed DSH allotment cap determined 

13 for the fiscal year under subparagraph 

14 (E)(i). 

15 ‘‘(iii) NONAPPLICATION.—Clause (i) 

16 shall not apply— 

17 ‘‘(I) with respect to a State that 

18 has in effect a waiver described in 

19 such clause if the State elects, 

20 through a revision of such waiver, 

21 that such clause will not apply; or 

22 ‘‘(II) with respect to any part of 

23 a fiscal year that occurs after the ex24 piration (determined without regard 

25 to any extension approved after the 


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1 date of the enactment of the State Ac2 countability, Flexibility, and Equity 

3 for Hospitals Act of 2023) of such a 

4 waiver. 

5 ‘‘(iv) NO EFFECT ON WAIVER AU6 THORITY.—Nothing in this subsection shall 

7 be construed as preventing the Secretary 

8 from approving a waiver under section 

9 1115 or other law with respect to require10 ments under this title related to a State’s 

11 use of its DSH allotment for a fiscal year. 

12 ‘‘(E) DEFINITIONS.—In this paragraph: 

13 ‘‘(i) DSH ALLOTMENT CAP.—The 

14 term ‘DSH allotment cap’ means, with re15 spect to a fiscal year, the amount equal to 

16 the total amount of the DSH allotments 

17 that would have been determined for all 

18 States for the fiscal year under this section 

19 as in effect on the day before the date of 

20 enactment of the SAFE Hospitals Act of 

21 2023, reduced, in the case of fiscal years 

22 2026 through 2029, by the aggregate 

23 amount of the reductions which would have 

24 been applicable for the fiscal year under 


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1 paragraph (7) of this subsection (as so in 

2 effect). 

3 ‘‘(ii) STATE POVERTY RATIO.—The 

4 term ‘State poverty ratio’ means, with re5 spect to a State and fiscal year, the ratio 

6 of— 

7 ‘‘(I) the number of individuals in 

8 the State in the most recent fiscal 

9 year for which census data are avail10 able whose income (as determined 

11 under section 1902(e)(14) (relating to 

12 modified adjusted gross income) and 

13 without regard to whether an individ14 ual’s income eligibility for medical as15 sistance is determined under such sec16 tion) was less than 100 percent of the 

17 poverty line (as defined in section 

18 2110(c)(5)) applicable to a family of 

19 the size involved; to 

20 ‘‘(II) the number of individuals 

21 in all States in the most recent fiscal 

22 year for which census data are avail23 able whose income (as so determined) 

24 was less than 100 percent of the povVerDate Sep 11 2014 01:22 Mar 01, 2023 Jkt 039200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\S407.IS S407

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1 erty line (as so defined) applicable to 

2 the family of the size involved.’’; and 

3 (6) by redesignating paragraph (9) as para4 graph (8). 

5 SEC. 3. PRIORITIZING DISPROPORTIONATE SHARE HOS6 PITAL PAYMENTS BASED ON MEDICAID INPA7 TIENT UTILIZATION AND LOW-INCOME UTILI8 ZATION RATES. 

9 (a) IN GENERAL.—Section 1923 of the Social Secu10 rity Act (42 U.S.C. 1396r–4) is amended— 

11 (1) in subsection (a)(2)(D), by inserting 

12 ‘‘(which, as of October 1, 2025, shall meet the re13 quirements of subsection (k))’’ after ‘‘methodology’’; 

14 (2) in subsection (c), by striking ‘‘and (g)’’ and 

15 inserting ‘‘, (g), and, beginning on October 1, 2025, 

16 (k)’’; 

17 (3) in subsection (d)(2)(A)— 

18 (A) in clause (i), by striking ‘‘; or’’ and in19 serting a semicolon; 

20 (B) in clause (ii), by striking the period at 

21 the end and inserting ‘‘; or’’; and 

22 (C) by adding at the end the following new 

23 clause: 

24 ‘‘(iii) that is an institution for mental 

25 diseases.’’; and 


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1 (4) by adding at the end the following new sub2 section: 

3 ‘‘(k) STATE METHODOLOGY REQUIREMENTS.— 

4 ‘‘(1) IN GENERAL.—Subject to paragraph (4), a 

5 State methodology for identifying and making pay6 ments to disproportionate share hospitals meets the 

7 requirements of this subsection if— 

8 ‘‘(A) the methodology is uniformly applied 

9 statewide; 

10 ‘‘(B) the methodology identifies each hos11 pital in the State that is described in a dis12 proportionate share hospital tier (as defined in 

13 paragraph (2)); and 

14 ‘‘(C) in making payments to dispropor15 tionate share hospitals, the methodology meets 

16 the requirements of paragraph (3). 

17 ‘‘(2) DISPROPORTIONATE SHARE HOSPITAL

18 TIERS.—The term ‘disproportionate share hospital 

19 tier’ means each of the following: 

20 ‘‘(A) TIER 1 HOSPITALS.—A category of 

21 hospitals (referred to in this section as ‘tier 1 

22 hospitals’) in which each hospital satisfies— 

23 ‘‘(i) each of the criteria described in 

24 clause (ii) of subparagraph (B); and 


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1 ‘‘(ii) one or more of the following cri2 teria: 

3 ‘‘(I) The hospital has a Medicaid 

4 inpatient utilization rate (as defined 

5 in subsection (b)(2)) that is not less 

6 than 2 standard deviations above the 

7 mean Medicaid inpatient utilization 

8 rate for hospitals receiving Medicaid 

9 payments in the State. 

10 ‘‘(II) The hospital has a low-in11 come utilization rate (as defined in 

12 subsection (b)(3)) of not less than 40 

13 percent. 

14 ‘‘(III) More than 70 percent of 

15 the inpatient days for which payments 

16 are received by the hospital are paid 

17 for under the Medicare program 

18 under title XVIII, the Medicaid pro19 gram under this title, or the Chil20 dren’s Health Insurance Program 

21 under title XXI. 

22 ‘‘(B) TIER 2 HOSPITALS.—A category of 

23 hospitals (referred to in this section as ‘tier 2 

24 hospitals’) in which each hospital— 


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1 ‘‘(i) is not described in the previous 

2 subparagraph; and 

3 ‘‘(ii) satisfies one or more of the fol4 lowing criteria: 

5 ‘‘(I) The hospital has a Medicaid 

6 inpatient utilization rate (as defined 

7 in subsection (b)(2)) that is not less 

8 than 1.5 standard deviations above 

9 the mean Medicaid inpatient utiliza10 tion rate for hospitals receiving Med11 icaid payments in the State. 

12 ‘‘(II) The hospital has a low-in13 come utilization rate (as defined in 

14 subsection (b)(3)) of not less than 35 

15 percent. 

16 ‘‘(III) The hospital has the larg17 est number of inpatient days attrib18 utable to individuals entitled to bene19 fits under the State plan of any hos20 pital in such State for the previous 

21 State fiscal year. 

22 ‘‘(C) TIER 3 HOSPITALS.—A category of 

23 hospitals (referred to in this section as ‘tier 3 

24 hospitals’) in which each hospital— 


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1 ‘‘(i) is not described in a previous sub2 paragraph; and 

3 ‘‘(ii) satisfies one or more of the fol4 lowing criteria: 

5 ‘‘(I) The hospital has a Medicaid 

6 inpatient utilization rate (as defined 

7 in subsection (b)(2)) that is not less 

8 than the mean Medicaid inpatient uti9 lization rate for hospitals receiving 

10 Medicaid payments in the State. 

11 ‘‘(II) The hospital has a low-in12 come utilization rate (as defined in 

13 subsection (b)(3)) of not less than 25 

14 percent. 

15 ‘‘(D) TIER 4 HOSPITALS.—A category of 

16 hospitals (referred to in this section as ‘tier 4 

17 hospitals’) in which each hospital— 

18 ‘‘(i) is not described in a previous sub19 paragraph; and 

20 ‘‘(ii) satisfies the requirement de21 scribed in subsection (d)(3). 

22 ‘‘(3) PAYMENT METHODOLOGY REQUIRE23 MENTS.— 

24 ‘‘(A) PRIORITIZATION OF HOSPITALS.—In 

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1 ments, a State methodology shall prioritize hos2 pitals in the following order: 

3 ‘‘(i) Tier 1 hospitals shall receive the 

4 highest priority. 

5 ‘‘(ii) Tier 2 hospitals shall receive the 

6 second-highest priority. 

7 ‘‘(iii) Tier 3 hospitals shall receive the 

8 third-highest priority. 

9 ‘‘(iv) Tier 4 hospitals shall receive the 

10 fourth-highest priority. 

11 ‘‘(B) FACTORS.—The methodology speci12 fies the factors that will be considered in deter13 mining the amount of a disproportionate share 

14 hospital payment to be made to a hospital, 

15 which may include— 

16 ‘‘(i) the hospital’s net operating mar17 gins (including past net operating mar18 gins); 

19 ‘‘(ii) past disproportionate share hos20 pital payments to the hospital; 

21 ‘‘(iii) whether the hospital was af22 fected by a major disaster (as declared by 

23 the President under section 401 of the 

24 Robert T. Stafford Disaster Relief and 


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1 Emergency Assistance Act) in the 12 

2 months prior to the payment; and 

3 ‘‘(iv) other relevant factors, as deter4 mined by the State (subject to the ap5 proval of the Secretary). 

6 ‘‘(C) CONSIDERATION OF FINANCIAL CIR7 CUMSTANCES OF HIGH TIER HOSPITALS.— 

8 ‘‘(i) IN GENERAL.—The State shall 

9 certify that the State methodology ade10 quately considers the unique financial cir11 cumstances of tier 1 hospitals and tier 2 

12 hospitals, and takes necessary steps to 

13 mitigate net operating losses by such hos14 pitals. 

15 ‘‘(ii) GUIDANCE.— 

16 ‘‘(I) IN GENERAL.—Not later 

17 than 18 months after the date of en18 actment of the SAFE Hospitals Act 

19 of 2023, the Secretary shall issue 

20 guidance to States outlining methods 

21 that States may use to satisfy the re22 quirement of this subparagraph. 

23 ‘‘(II) STATE ALTERNATIVES.— 

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1 native method for satisfying the re2 quirement of this subparagraph. 

3 ‘‘(D) TREATMENT OF IMDS AND CAHS.— 

4 The State shall specify how the methodology 

5 prioritizes institutions for mental diseases and 

6 critical access hospitals (as defined in section 

7 1861(mm)(1)), but in no case shall institutions 

8 for mental diseases or critical access hospitals 

9 receive a higher priority than tier 1 hospitals. 

10 ‘‘(E) STATE AUTHORITY TO RECLASSIFY

11 HOSPITALS.—Subject to the approval of the 

12 Secretary, for purposes of prioritizing dis13 proportionate share payments under a State 

14 methodology under this subsection, a State may 

15 treat up to 15 percent of all disproportionate 

16 share hospitals in the State, excluding institu17 tions for mental diseases, as belonging to a dif18 ferent disproportionate share hospital tier than 

19 the tier in which the hospitals are described 

20 under paragraph (2). 

21 ‘‘(F) RULE OF CONSTRUCTION.—Nothing 

22 in this subsection shall be construed as requir23 ing a State to apply a uniform payment meth24 odology to all hospitals within a dispropor25 tionate share hospital tier. 


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1 ‘‘(4) METHODOLOGY FOR STATES WITH FEWER

2 THAN 15 DISPROPORTIONATE SHARE HOSPITALS.— 

3 ‘‘(A) IN GENERAL.—In the case of a State 

4 that has fewer than 15 disproportionate share 

5 hospitals, the State shall use the methodology 

6 for identifying and making payments to dis7 proportionate share hospitals that is developed 

8 by the Secretary under subparagraph (B). 

9 ‘‘(B) DEVELOPMENT OF METHODOLOGY.— 

10 Not later than 18 months after the date of en11 actment of the SAFE Hospitals Act of 2023, 

12 the Secretary shall develop a methodology for 

13 identifying and making payments to dispropor14 tionate share hospitals for States that have 

15 fewer than 15 disproportionate share hospitals 

16 that prioritizes DSH payments to hospitals with 

17 disproportionately high volumes of Medicaid pa18 tients and low-income patients. 

19 ‘‘(5) NO EFFECT ON WAIVER AUTHORITY.— 

20 Nothing in this subsection shall be construed as pre21 venting the Secretary from approving a waiver under 

22 section 1115 or other law with respect to require23 ments under this subsection related to the method24 ology used by States to identify and make payments 

25 to disproportionate share hospitals.’’. 


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1 (b) MODIFICATION OF CAP ON INDIVIDUAL DSH 

2 PAYMENTS.—Section 1923(g)(1)(A)(i) of the Social Secu3 rity Act (42 U.S.C. 1396r–4(g)(1)(A)(i)) is amended by 

4 inserting ‘‘(including any costs incurred by the hospital 

5 during the year that are associated with subsidizing a phy6 sician or a clinic or other health center that is owned and 

7 operated by, controlled by, or in common control with the 

8 hospital for the purpose of providing care to such individ9 uals)’’ after ‘‘individuals described in subparagraph (B)’’. 

10 (c) MODIFICATION OF DSH QUALIFICATION RE11 QUIREMENTS.— 

12 (1) IN GENERAL.—Section 1923(d)(3) of the 

13 Social Security Act (42 U.S.C. 1396r–4(d)(3)) is 

14 amended by striking ‘‘unless the hospital’’ and all 

15 that follows through the period and inserting the fol16 lowing: ‘‘unless the hospital— 

17 ‘‘(A) has a Medicaid inpatient utilization 

18 rate (as defined in subsection (b)(2)) that is not 

19 more than 1 standard deviation below the mean 

20 Medicaid inpatient utilization rate for hospitals 

21 receiving Medicaid payments in the State; 

22 ‘‘(B) has a low-income utilization rate (as 

23 defined in subsection (b)(3)) that is not less 

24 than 10 percent; or 


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1 ‘‘(C) is a critical access hospital (as de2 fined in section 1861(mm)(1)).’’. 

3 (2) EFFECTIVE DATE.—The amendments made 

4 by this subsection shall take effect on October 1, 

5 2025. 

Æ 


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