Not all hospitals are created equally. There are those that service medium-sized cities and those found in rural communities. There are major metropolis medical centers and there are hospitals that are a part of a greater health system. Today’s article deals with a medical facility category called “Disproportionate Share Hospitals,” or DSHs. We will take a look at what they are and the regulations that have recently been put into place that pertain to them.

What Are They?

Disproportionate share hospitals are defined in Section 1886(d)(1)(B) of the Social Security Act. According to the U.S. Health Resources and Services Administration (HRSA), the designation of DSH is meant to describe those hospitals that (a) serve a significantly disproportionate number of low-income patients, and (b) receive payments from the Centers for Medicaid and Medicare Services (CMS) to cover the costs of providing care to uninsured patients.

340 Drug Program

To be eligible to participate in the 340B Drug Pricing Program, disproportionate share hospitals must meet the requirements of 42 USC 256b(a)(4)(L), which requires, among other things, that the facility “does not obtain covered outpatient drugs through a group purchasing organization or other group purchasing arrangement.” In order to purchase outpatient drugs at significantly discounted prices, DSHs must meet one of the following classifications:

A private nonprofit hospital under contract with state or local government to provide health care services to low-income individuals who are not eligible for Medicare or Medicaid; or
Owned or operated by a unit of state or local government; or
A public or private nonprofit corporation that is formally granted governmental powers by a unit of state or local government.
To be clear, for-profit hospitals are not eligible to participate in the 340B program. To be eligible to participate in the 340B Drug Pricing Program, DSLs must have a disproportionate share adjustment percentage greater than 11.75 percent for the most-recently filed cost report.

The Consolidated Appropriations Act of 2022 was signed into law on March 15, 2022. Section 121 of the law permits DSHs that were previously barred from participating in the 340B Drug Pricing Program to be reinstated if they meet the following conditions:

The hospital must have been terminated from the 340B Program due to an inability to meet the statutorily required disproportionate share adjustment (DSH percentage) during the following Medicare cost reporting period(s): beginning October 1, 2019 and ending no later than December 31, 2022.
The hospital’s termination must have been as a result of actions taken by or other impact on the hospital in response to, or as a result of, the COVID-19 Public Health Emergency (PHE).
The hospital must have been a covered entity on January 26, 2020, i.e., the day before the first day of the COVID-19 PHE.
If you believe that your hospital may be eligible for this exception and have not yet been contacted by HRSA, please contact the 340B Prime Vendor at 1-888-340-2787 (Monday – Friday, 9 a.m. – 6 p.m. ET) or apexusanswers@340bpvp.com. Requests will be evaluated on a case-by-case basis.

Uncompensated Care Payments

The 2023 Inpatient Prospective Payment System (IPPS) Final Rule (FR) contained comments concerning uncompensated care payments. As our readers may know, CMS distributes a prospectively determined amount of these payments to Medicare DSHs based on their relative share of uncompensated care nationally. As required under law, this amount is equal to an estimate of 75 percent of what otherwise would have been paid as Medicare DSH payments, adjusted for the change in the rate of uninsured individuals. The FR stated that CMS will distribute roughly $6.8 billion in uncompensated care payments for FY 2023, which reflects a decrease of approximately $318 million from FY 2022.

The FR also made clear that CMS would be using the two most recent years of audited data on uncompensated care costs from Worksheet S 10 of hospitals’ FY 2018 and FY 2019 cost reports to distribute these funds. In addition, for FY 2024 and subsequent fiscal years, CMS will use a three-year average of the uncompensated care data from the three most recent fiscal years for which audited data are available.

Section 1115 Demonstrations

In the 2023 IPPS Proposed Rule, CMS indicated its plan to revise the regulation governing the calculation of the Medicaid fraction of the Medicare DSH calculation. However, pursuant to the FR, CMS is not finalizing any changes in regard to the treatment of section 1115 demonstration days. Due to the number and nature of the comments CMS has determined not to move forward with the proposal.