Disproportionate Share Hospital (DSH)

Disproportionate Share Hospital (DSH) adjustment payments provide additional help to those hospitals that serve a significantly disproportionate number of low-income patients; eligible hospitals are referred to as DSH hospitals. States receive an annual DSH allotment to cover the costs of DSH hospitals that provide care to low-income patients that are not paid by other payers, such as Medicare, Medicaid, the Children’s Health Insurance Program (CHIP) or other health insurance. This annual allotment is calculated by law and includes requirements to ensure that the DSH payments to individual DSH hospitals are not higher than these actual uncompensated costs.

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The American Recovery and Reinvestment Act of 2009 Impact on DSH

Section 5002 of the American Recovery and Reinvestment Act of 2009 (ARRA), provides additional potential fiscal relief to States by increasing most States’ Federal fiscal year (FFY) 2009 and 2010 Medicaid DSH allotments by 2.5 percent.
HHS/CMS has determined the preliminary increased amounts of each States’ FFY 2009 DSH allotments that would be available to States under the ARRA provision.
Prior to ARRA, the FY 2009 Federal Medicaid DSH allotments for all States totaled approximately $11.07 billion. After the increase authorized by ARRA, we estimate that the total Federal Medicaid DSH allotments available to States would increase by $269 million to approximately $11.34 billion.

How the New Funds will be Released

While HHS/CMS is announcing the preliminary amounts of States’ increased FY 2009 Medicaid DSH allotments, it is not immediately releasing funds to States related to the amount of the increase.

As part of the budget request process from States, HHS/CMS will be asking States to estimate how much of their additional Federal Medicaid DSH allotment they may need. Any additional funds requested by States for Medicaid DSH payments will be handled through separate Medicaid grant awards similar to how the funds associated with the increased FMAP were released to States.
States will have to first exhaust their original FY 2009 Federal Medicaid DSH allotments (un-adjusted by ARRA) before they can access the increased portion of their Federal Medicaid DSH allotments as authorized under ARRA.
Historically, not every State expends its full allotment on a yearly basis. So it is unclear at this time, how many States will need these additional allotment funds.