(A) in the subparagraph heading, by strik-
ing ‘‘AND SUBSEQUENT FISCAL YEARS’’ and in-
serting ‘‘THROUGH FISCAL YEAR 2021’’; and 
(B) in clause (iii), by inserting ‘‘through 
fiscal year 2021’’ after ‘‘any subsequent fiscal 
year’’; 
(4) in paragraph (6)— 
(A) in clause (vi) of subparagraph (A)— 
(i) in the clause heading, by striking 
‘‘2025’’ and inserting ‘‘2021’’; and 
(ii) by striking ‘‘fiscal year 2025’’ and 
inserting ‘‘fiscal year 2021’’; and 
(B) in clause (iii) of subparagraph (B)— 
(i) in the clause heading, by inserting 
‘‘THROUGH FISCAL YEAR 2021’’ after ‘‘SUC-
CEEDING FISCAL YEARS’’; and 
(ii) in subclause (II)— 
(I) in the subclause heading, by 
inserting ‘‘THROUGH
FISCAL
YEAR 
2021’’ 
after 
‘‘SUCCEEDING
FISCAL 
YEARS’’; and 
(II) by inserting ‘‘through fiscal 
year 2021’’ after ‘‘each fiscal year 
thereafter’’; 
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(5) by striking paragraphs (7) and (8) and in-
serting the following: 
‘‘(7) STATE
DSH
ALLOTMENTS
FOR
FISCAL 
YEARS AFTER FISCAL YEAR 2021.— 
‘‘(A) IN
GENERAL.—Subject to subpara-
graphs (B), (C), and (D), beginning with fiscal 
year 2022, the DSH allotment for a State and 
fiscal year shall be the amount equal to the 
product of— 
‘‘(i) the State poverty ratio (as deter-
mined under subparagraph (E)(ii)) for the 
State and fiscal year; and 
‘‘(ii) the DSH allotment cap (as de-
termined under subparagraph (E)(i)) for 
the fiscal year. 
‘‘(B) PHASE-IN OF POVERTY-BASED FOR-
MULA.— 
‘‘(i) IN GENERAL.—During the period 
of fiscal years described in clause (ii), the 
Secretary shall phase in the application of 
the determination of DSH allotments 
under subparagraph (A) in a manner that 
ensures that— 
‘‘(I) in no case is the DSH allot-
ment for a State for a fiscal year dur-
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ing such period less than 90 percent 
of the DSH allotment for the State 
for the previous fiscal year (without 
regard to whether the State used the 
full amount of the DSH allotment for 
the previous fiscal year); and 
‘‘(II) the total amount of DSH 
allotments made to all States for any 
fiscal year during such period does 
not exceed the DSH allotment cap de-
termined for the fiscal year under 
subparagraph (E)(i). 
‘‘(ii) PHASE-IN PERIOD.—The period 
of fiscal years described in this clause is 
the period that begins with fiscal year 
2022 and ends with— 
‘‘(I) fiscal year 2031; or 
‘‘(II) at the Secretary’s discre-
tion, any of fiscal years 2032 through 
2036. 
‘‘(iii) DEVELOPMENT
OF
METHOD-
OLOGY.—The Secretary shall promulgate 
final regulations that establish the method-
ology for determining State DSH allot-
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ments under clause (i) not later than Jan-
uary 1, 2021. 
‘‘(C) STATE ALLOTMENT FLEXIBILITY OP-
TION.— 
‘‘(i) IN GENERAL.—A State may elect 
to increase or reduce the amount of the 
DSH allotment for the State and a fiscal 
year (as otherwise determined under this 
paragraph) for the purpose of providing 
certainty or more consistent DSH funding 
in subsequent fiscal years in accordance 
with this subparagraph. 
‘‘(ii) STATE OPTION TO RESERVE AL-
LOTMENT AMOUNTS.—For any fiscal year 
after fiscal year 2021, a State may request 
that the DSH allotment for the State and 
fiscal year (as otherwise determined under 
this paragraph) be reduced by an amount 
that shall not exceed 10 percent of the 
amount of the allotment as so determined. 
‘‘(iii) STATE
OPTION
TO
INCREASE 
DSH
ALLOTMENT
FROM
ALLOTMENT
RE-
SERVE.—For any fiscal year after fiscal 
year 2022, a State may request that the 
DSH allotment for the State and fiscal 
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year (as otherwise determined under this 
paragraph) be increased by an amount 
that shall not exceed the DSH reserve 
amount for the State and fiscal year. 
‘‘(iv) DSH RESERVE AMOUNT.— 
‘‘(I) IN
GENERAL.—Subject to 
subclause (II), the DSH reserve 
amount for a State and fiscal year 
shall be equal to the sum of the 
amounts, if any, of any reductions to 
the State’s DSH allotment (as other-
wise determined under this para-
graph) made in each of the preceding 
5 fiscal years pursuant to a request 
under clause (ii). 
‘‘(II) 
SUBTRACTION
OF
IN-
CREASES
FROM
DSH
RESERVE 
AMOUNT.—The amount of any in-
crease to a State’s DSH allotment for 
a fiscal year made pursuant to a re-
quest under clause (iii) shall be sub-
tracted from the State’s DSH reserve 
amount for such year and shall not be 
available to the State in subsequent 
fiscal years. 
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‘‘(III) RULE OF APPLICATION.— 
In the case of an increase to a State’s 
DSH allotment for a fiscal year that 
is less than the State’s DSH reserve 
amount for such year, the Secretary 
shall apply subclause (II) in a manner 
that maximizes the DSH reserve 
amount that will remain available to 
the State in subsequent fiscal years. 
‘‘(v) DISREGARD OF ADJUSTMENTS.— 
Any increase or reduction under this sub-
paragraph to the DSH allotment of a 
State for a fiscal year shall be disregarded 
when otherwise determining State DSH al-
lotments under this paragraph. 
‘‘(D) TREATMENT OF WAIVERS.— 
‘‘(i) IN GENERAL.—Subject to clause 
(ii), with respect to a State and a fiscal 
year, if the State has in effect on the date 
of enactment of the SAFE Hospitals Act 
of 2019 a statewide waiver of requirements 
of this title under section 1115 or other 
law and any part of the fiscal year occurs 
during the period of the waiver (as ap-
proved as of such date), the DSH allot-
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ment determined under this paragraph for 
such State and fiscal year shall not be less 
than the DSH allotment that would have 
been determined for such State and fiscal 
year under this section as in effect on the 
day before the date of enactment of the 
SAFE Hospitals Act of 2019, reduced, in 
the case of each of fiscal years 2022 
through 2025, by the amount of the 
State’s share of the reductions which 
would have been applicable for the fiscal 
year under paragraph (7) of this sub-
section (as so in effect), as estimated by 
the Secretary. 
‘‘(ii) TOTAL ALLOTMENTS NOT TO EX-
CEED
DSH
ALLOTMENT
CAP.—The Sec-
retary shall apply this subparagraph in 
such a manner that the total amount of 
DSH allotments determined for all States 
for a fiscal year under this paragraph does 
not exceed DSH allotment cap determined 
for the fiscal year under subparagraph 
(E)(i). 
‘‘(iii) NONAPPLICATION.—Clause (i) 
shall not apply— 
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‘‘(I) with respect to a State that 
has in effect a waiver described in 
such clause if the State elects, 
through a revision of such waiver, 
that such clause will not apply; or 
‘‘(II) with respect to any part of 
a fiscal year that occurs after the ex-
piration (determined without regard 
to any extension approved after the 
date of the enactment of the State Ac-
countability, Flexibility, and Equity 
for Hospitals Act of 2019) of such a 
waiver. 
‘‘(iv) NO
EFFECT
ON
WAIVER
AU-
THORITY.—Nothing in this subsection shall 
be construed as preventing the Secretary 
from approving a waiver under section 
1115 or other law with respect to require-
ments under this title related to a State’s 
use of its DSH allotment for a fiscal year. 
‘‘(E) DEFINITIONS.—In this paragraph: 
‘‘(i) DSH 
ALLOTMENT
CAP.—The 
term ‘DSH allotment cap’ means, with re-
spect to a fiscal year, the amount equal to 
the total amount of the DSH allotments 
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that would have been determined for all 
States for the fiscal year under this section 
as in effect on the day before the date of 
enactment of the SAFE Hospitals Act of 
2019, reduced, in the case of fiscal years 
2022 through 2025, by the aggregate 
amount of the reductions which would have 
been applicable for the fiscal year under 
paragraph (7) of this subsection (as so in 
effect). 
‘‘(ii) STATE
POVERTY
RATIO.—The 
term ‘State poverty ratio’ means, with re-
spect to a State and fiscal year, the ratio 
of— 
‘‘(I) the number of individuals in 
the State in the most recent fiscal 
year for which census data are avail-
able whose income (as determined 
under section 1902(e)(14) (relating to 
modified adjusted gross income) and 
without regard to whether an individ-
ual’s income eligibility for medical as-
sistance is determined under such sec-
tion) was less than 100 percent of the 
poverty line (as defined in section 
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2110(c)(5)) applicable to a family of 
the size involved; to 
‘‘(II) the number of individuals 
in all States in the most recent fiscal 
year for which census data are avail-
able whose income (as so determined) 
was less than 100 percent of the pov-
erty line (as so defined) applicable to 
the family of the size involved.’’; and 
(6) by redesignating paragraph (9) as para-
graph (8). 
SEC. 3. PRIORITIZING DISPROPORTIONATE SHARE HOS-
PITAL PAYMENTS BASED ON MEDICAID INPA-
TIENT UTILIZATION AND LOW-INCOME UTILI-
ZATION RATES. 
(a) IN GENERAL.—Section 1923 of the Social Secu-
rity Act (42 U.S.C. 1396r–4) is amended— 
(1) in subsection (a)(2)(D), by inserting 
‘‘(which, as of October 1, 2021, shall meet the re-
quirements of subsection (k))’’ after ‘‘methodology’’; 
(2) in subsection (c), by striking ‘‘and (g)’’ and 
inserting ‘‘, (g), and, beginning on October 1, 2021, 
(k)’’; 
(3) in subsection (d)(2)(A)— 
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(A) in clause (i), by striking ‘‘; or’’ and in-
serting a semicolon; 
(B) in clause (ii), by striking the period at 
the end and inserting ‘‘; or’’; and 
(C) by adding at the end the following new 
clause: 
‘‘(iii) that is an institution for mental dis-
eases.’’; and 
(4) by adding at the end the following new sub-
section: 
‘‘(k) STATE METHODOLOGY REQUIREMENTS.— 
‘‘(1) IN GENERAL.—Subject to paragraph (4), a 
State methodology for identifying and making pay-
ments to disproportionate share hospitals meets the 
requirements of this subsection if— 
‘‘(A) the methodology is uniformly applied 
statewide; 
‘‘(B) the methodology identifies each hos-
pital in the State that is described in a dis-
proportionate share hospital tier (as defined in 
paragraph (2)); and 
‘‘(C) in making payments to dispropor-
tionate share hospitals, the methodology meets 
the requirements of paragraph (3). 
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‘‘(2) DISPROPORTIONATE
SHARE
HOSPITAL 
TIERS.—The term ‘disproportionate share hospital 
tier’ means each of the following: 
‘‘(A) TIER 1 HOSPITALS.—A category of 
hospitals (referred to in this section as ‘tier 1 
hospitals’) in which each hospital satisfies— 
‘‘(i) each of the criteria described in 
clause (ii) of subparagraph (B); and 
‘‘(ii) one or more of the following cri-
teria: 
‘‘(I) The hospital has a Medicaid 
inpatient utilization rate (as defined 
in subsection (b)(2)) that is not less 
than 2 standard deviations above the 
mean Medicaid inpatient utilization 
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 40 
percent. 
‘‘(III) More than 70 percent of 
the inpatient days for which payments 
are received by the hospital are paid 
for under the Medicare program 
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under title XVIII, the Medicaid pro-
gram under this title, or the Chil-
dren’s Health Insurance Program 
under title XXI. 
‘‘(B) TIER 2 HOSPITALS.—A category of 
hospitals (referred to in this section as ‘tier 2 
hospitals’) in which each hospital— 
‘‘(i) is not described in the previous 
subparagraph; 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 1.5 standard deviations above 
the mean Medicaid inpatient utiliza-
tion rate for hospitals receiving Med-
icaid payments in the State. 
‘‘(II) The hospital has a low-in-
come utilization rate (as defined in 
subsection (b)(3)) of not less than 35 
percent. 
‘‘(III) The hospital has the larg-
est number of inpatient days attrib-
utable to individuals entitled to bene-
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‘‘(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 
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 2019, the Secretary shall issue 
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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-
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 
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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. 
‘‘(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 2019, 
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. 
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‘‘(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.’’. 
(b) MODIFICATION OF CAP ON INDIVIDUAL DSH 
PAYMENTS.—Section 1923(g)(1)(A) of the Social Security 
Act (42 U.S.C. 1396r–4(g)(1)(A)) is amended, in the first 
sentence, by inserting ‘‘, including any costs incurred by 
the hospital during the year that are associated with sub-
sidizing a physician 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 indigent patients’’ before the period. 
(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 
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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 
‘‘(C) is a critical access hospital (as de-
fined in section 1861(mm)(1)).’’. 
(2) EFFECTIVE DATE.—The amendments made 
by this subsection shall take effect on October 1, 
2021. 
Æ 
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