‘‘(i) is not described in a previous sub-
paragraph; and 
‘‘(ii) satisfies one or more of the fol-
lowing criteria: 
‘‘(I) The hospital has a Medicaid 
inpatient utilization rate (as defined 
in subsection (b)(2)) that is not less 
than the mean Medicaid inpatient uti-
lization rate for hospitals receiving 
Medicaid payments in the State. 
‘‘(II) The hospital has a low-in-
come utilization rate (as defined in 
subsection (b)(3)) of not less than 25 
percent. 
‘‘(D) TIER 4 HOSPITALS.—A category of 
hospitals (referred to in this section as ‘tier 4 
hospitals’) in which each hospital— 
‘‘(i) is not described in a previous sub-
paragraph; and 
‘‘(ii) satisfies the requirement de-
scribed in subsection (d)(3). 
‘‘(3) 
PAYMENT
METHODOLOGY
REQUIRE-
MENTS.— 
‘‘(A) PRIORITIZATION OF HOSPITALS.—In 
making disproportionate share hospital pay-
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ments, a State methodology shall prioritize hos-
pitals in the following order: 
‘‘(i) Tier 1 hospitals shall receive the 
highest priority. 
‘‘(ii) Tier 2 hospitals shall receive the 
second-highest priority. 
‘‘(iii) Tier 3 hospitals shall receive the 
third-highest priority. 
‘‘(iv) Tier 4 hospitals shall receive the 
fourth-highest priority. 
‘‘(B) FACTORS.—The methodology speci-
fies the factors that will be considered in deter-
mining the amount of a disproportionate share 
hospital payment to be made to a hospital, 
which may include— 
‘‘(i) the hospital’s net operating mar-
gins (including past net operating mar-
gins); 
‘‘(ii) past disproportionate share hos-
pital payments to the hospital; 
‘‘(iii) whether the hospital was af-
fected by a major disaster (as declared by 
the President under section 401 of the 
Robert T. Stafford Disaster Relief and 
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Emergency Assistance Act) in the 12 
months prior to the payment; and 
‘‘(iv) other relevant factors, as deter-
mined by the State (subject to the ap-
proval of the Secretary). 
‘‘(C) CONSIDERATION OF FINANCIAL CIR-
CUMSTANCES OF HIGH TIER HOSPITALS.— 
‘‘(i) IN
GENERAL.—The State shall 
certify that the State methodology ade-
quately considers the unique financial cir-
cumstances of tier 1 hospitals and tier 2 
hospitals, and takes necessary steps to 
mitigate net operating losses by such hos-
pitals. 
‘‘(ii) GUIDANCE.— 
‘‘(I) IN
GENERAL.—Not later 
than 18 months after the date of en-
actment of the SAFE Hospitals Act 
of 2023, the Secretary shall issue 
guidance to States outlining methods 
that States may use to satisfy the re-
quirement of this subparagraph. 
‘‘(II) STATE
ALTERNATIVES.— 
Subject to the approval of the Sec-
retary, a State may develop an alter-
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native method for satisfying the re-
quirement of this subparagraph. 
‘‘(D) TREATMENT OF IMDS AND CAHS.— 
The State shall specify how the methodology 
prioritizes institutions for mental diseases and 
critical access hospitals (as defined in section 
1861(mm)(1)), but in no case shall institutions 
for mental diseases or critical access hospitals 
receive a higher priority than tier 1 hospitals. 
‘‘(E) STATE
AUTHORITY
TO
RECLASSIFY 
HOSPITALS.—Subject to the approval of the 
Secretary, for purposes of prioritizing dis-
proportionate share payments under a State 
methodology under this subsection, a State may 
treat up to 15 percent of all disproportionate 
share hospitals in the State, excluding institu-
tions for mental diseases, as belonging to a dif-
ferent disproportionate share hospital tier than 
the tier in which the hospitals are described 
under paragraph (2). 
‘‘(F) RULE OF CONSTRUCTION.—Nothing 
in this subsection shall be construed as requir-
ing a State to apply a uniform payment meth-
odology to all hospitals within a dispropor-
tionate share hospital tier. 
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‘‘(4) METHODOLOGY FOR STATES WITH FEWER 
THAN 15 DISPROPORTIONATE SHARE HOSPITALS.— 
‘‘(A) IN GENERAL.—In the case of a State 
that has fewer than 15 disproportionate share 
hospitals, the State shall use the methodology 
for identifying and making payments to dis-
proportionate share hospitals that is developed 
by the Secretary under subparagraph (B). 
‘‘(B) DEVELOPMENT OF METHODOLOGY.— 
Not later than 18 months after the date of en-
actment of the SAFE Hospitals Act of 2023, 
the Secretary shall develop a methodology for 
identifying and making payments to dispropor-
tionate share hospitals for States that have 
fewer than 15 disproportionate share hospitals 
that prioritizes DSH payments to hospitals with 
disproportionately high volumes of Medicaid pa-
tients and low-income patients. 
‘‘(5) NO
EFFECT
ON
WAIVER
AUTHORITY.— 
Nothing in this subsection shall be construed as pre-
venting the Secretary from approving a waiver under 
section 1115 or other law with respect to require-
ments under this subsection related to the method-
ology used by States to identify and make payments 
to disproportionate share hospitals.’’. 
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(b) MODIFICATION OF CAP ON INDIVIDUAL DSH 
PAYMENTS.—Section 1923(g)(1)(A)(i) of the Social Secu-
rity Act (42 U.S.C. 1396r–4(g)(1)(A)(i)) is amended by 
inserting ‘‘(including any costs incurred by the hospital 
during the year that are associated with subsidizing a phy-
sician or a clinic or other health center that is owned and 
operated by, controlled by, or in common control with the 
hospital for the purpose of providing care to such individ-
uals)’’ after ‘‘individuals described in subparagraph (B)’’. 
(c) MODIFICATION
OF DSH QUALIFICATION RE-
QUIREMENTS.— 
(1) IN GENERAL.—Section 1923(d)(3) of the 
Social Security Act (42 U.S.C. 1396r–4(d)(3)) is 
amended by striking ‘‘unless the hospital’’ and all 
that follows through the period and inserting the fol-
lowing: ‘‘unless the hospital— 
‘‘(A) has a Medicaid inpatient utilization 
rate (as defined in subsection (b)(2)) that is not 
more than 1 standard deviation below the mean 
Medicaid inpatient utilization rate for hospitals 
receiving Medicaid payments in the State; 
‘‘(B) has a low-income utilization rate (as 
defined in subsection (b)(3)) that is not less 
than 10 percent; or 
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