The DSH Issue no one's talking about.

March 1, 2023 -    

Medicaid Direct Payments, authorized under 42 CFR § 438.6, are set to increase across the nation. While this increase may have immediate benefits for hospitals receiving them, there is a long-term issue that has not been given enough attention. These Direct Payments will count as Medicaid payments on each state’s DSH audit required by Section 1923 of the Social Security Act, and may result in a reduction of total Uncompensated Care on the DSH Cap.

Medicaid Direct Payments are true Medicaid Payments with a Federal Match, and must be reported as Medicaid payments for the DSH Audit. As such, hospitals that keep all their DSH money now may not be able to keep all their DSH money in the future. This could come as a surprise to some hospitals when they conduct a DSH audit and are unable to keep all the DSH funds.

According to a study by the Medicaid and CHIP Payment and Access Commission, Medicaid Direct Payments increased by 10.3% from 2018 to 2019. With Direct Payment plans continuing to increase nationwide and DSH Audits currently lagging 3 years, this issue could have significant implications for hospitals in the future. In prior years, most hospitals have viewed the DSH audit as nothing more than a nuisance, but it is important to recognize that it sets an upper ceiling for the maximum DSH payment the hospital is allowed to receive.

As such, hospitals should begin to take this issue seriously and consider how it may impact their long-term financial outlook. Strategies such as increasing charity care, expanding community benefit programs, and exploring alternative payment models may be necessary to maintain their DSH funding. It is important for hospitals to understand the potential impact of increasing Medicaid Direct Payments on their future DSH funding and to take proactive steps to mitigate any negative effects.

In conclusion, the increase in Medicaid Direct Payments may have unintended consequences for hospitals that rely on DSH funding. As these Direct Payments are counted towards a hospital's Medicaid payments for the DSH Audit, hospitals may not be able to keep all of their DSH money in the future. Hospitals should take this issue seriously and consider strategies to maintain their DSH funding.