This bill amends section 1923(g) of the Social Security Act to change how states calculate disproportionate share hospital (DSH) payment adjustments under Medicaid. It explicitly allows payments made under Medicare (title XVIII) and other applicable plans to be treated as payor sources in the DSH uncompensated care calculation, and it broadens the individuals that states may count when hospitals incur net uncompensated costs after other payors pay.
The bill also gives states a limited one‑time option to use unspent DSH allotments for Medicaid State plan rate years beginning October 1, 2021 through the date of enactment to increase prior-year payments to hospitals, subject to caps and reporting. Those changes change which hospitals can receive DSH dollars, create new pathways for retroactive State Plan Amendments (SPAs) and waivers, and raise compliance and audit issues for states, CMS, and hospitals.
At a Glance
What It Does
It modifies the Medicaid DSH uncompensated care calculation to include Medicare and other applicable plan payments and permits counting certain Medicaid‑eligible individuals after application of Medicare. It also lets states reallocate unspent DSH allotments from rate years beginning Oct. 1, 2021 through enactment to boost prior payments, subject to the State's DSH allotment cap.
Who It Affects
Safety‑net hospitals (especially those serving large numbers of Medicare‑Medicaid dual eligibles), state Medicaid agencies that administer DSH programs, CMS (for approvals and audits), and hospital finance and compliance teams who document uncompensated care.
Why It Matters
The change can shift which hospitals qualify for and receive DSH payments by recognizing Medicare and other third‑party payments in the uncompensated care formula and by enabling states to redeploy prior unspent federal DSH allotments. That alters financial flows for hospitals and raises new compliance, audit, and program integrity questions.
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What This Bill Actually Does
The bill rewrites how states count uncompensated care for Medicaid disproportionate share hospital (DSH) payments. Under current rules, states calculate unreimbursed costs to determine DSH eligibility; this bill adds explicit language allowing payments made under Medicare (title XVIII) and other applicable plans to be treated as payor sources in that calculation.
Practically, a hospital that treats a patient eligible for both Medicare and Medicaid would have Medicare payments credited first, and the hospital could only claim DSH for that patient if its aggregate incurred costs still exceed the sum of payments from Medicaid, Medicare, or other applicable plans.
In addition to changing the payor‑crediting rule, the bill expands the set of individuals a state may count when computing uncompensated care to include Medicaid‑eligible individuals for whom the state plan or approved waiver is a residual payor after Medicare or an applicable plan has paid — but only if the hospital demonstrates net costs above the combined payments. That forces hospitals to document both payments received from multiple payors and their actual incurred costs attributable to those individuals for the relevant rate year.The bill also contains a narrow remediation pathway for unused federal DSH allotments from Medicaid State plan rate years beginning Oct. 1, 2021 and before the bill's enactment.
If a state did not spend its full federal allotment for such a rate year, it may use the unspent portion to increase DSH payment adjustments for that same rate year, so long as the increases comply with the revised 1923(g) rules and the state's total DSH payments do not exceed the allotment under subsection (f). The measure prevents states from recouping any payments already made to hospitals that were consistent with 1923(g) as of Oct. 1, 2021.To operationalize that retroactive use of funds, the bill authorizes CMS to approve retroactive SPAs or waivers solely for the purpose of raising prior payments; states must submit such requests before they file the independent certified audit for that rate year (the deadline specified in 1923(j)(2)).
States that increase prior payments under this option must report the increases in their next annual 1923(j)(1) report. Those procedural provisions create a one‑time window for states to redistribute prior federal DSH dollars subject to audit timing and reporting constraints.
The Five Things You Need to Know
The bill amends 42 U.S.C. 1396r–4(g) to explicitly include payments made under title XVIII (Medicare) and 'applicable plans' in the list of payors considered when calculating uncompensated care for DSH.
It allows states to count Medicaid‑eligible individuals who receive other payor payments (e.g.
Medicare) in the DSH uncompensated care pool only if the hospital’s incurred costs exceed payments from Medicaid, Medicare, and applicable plans for those individuals.
Effective date: the statutory changes apply to Medicaid State plan rate years beginning on or after the date of enactment; however, states may use unspent DSH allotments from rate years beginning Oct. 1, 2021 through the date of enactment to increase prior payments.
States may not recoup payments already made to hospitals that were consistent with 1923(g) as in effect on October 1, 2021, but may seek CMS approval to retroactively modify SPAs or waivers to increase payments if requests are submitted before the independent certified audit deadline under 1923(j)(2).
If a state increases prior‑year DSH payments under this authority, it must disclose those increases in its next annual report under 1923(j)(1); total DSH payments for the rate year remain capped by the state's FFY DSH allotment under subsection (f).
Section-by-Section Breakdown
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Short title
Designates the measure as the 'Save our Safety‑Net Hospitals Act of 2025.' This is purely nominal but signals the bill’s focus on protecting hospitals that serve disproportionate numbers of low‑income and dual‑eligible patients.
Include Medicare and applicable plan payments in payor crediting
The bill amends paragraph (1)(A) to add payments made under title XVIII (Medicare) and 'applicable plans' (per section 1862(b)(8)(F)) to the list of payments considered when determining whether a hospital incurred uncompensated costs. Practically, this means states must account for Medicare (and defined third‑party) payments first, and hospitals can only claim DSH for the remaining uncompensated portion. Compliance requires hospitals to reconcile multi‑payer receipts against incurred costs for each relevant patient cohort.
Expand who may be counted for uncompensated care
This change lets states count Medicaid‑eligible individuals who are billed to Medicaid only after Medicare or other applicable plans have paid — but only when the hospital’s aggregate incurred costs exceed payments from Medicaid, Medicare, or applicable plans for those services during the rate year. The addition creates a conditional pathway for dual‑eligible patients to be included in DSH calculations, shifting the evidentiary burden onto hospitals to demonstrate net unreimbursed costs after all payors have paid.
Remove and redesignate obsolete paragraph
The bill deletes the prior paragraph (2) and redesignates paragraph (3) as paragraph (2), along with a cross‑reference cleanup. Those are technical reorganizations that do not change substance but are necessary to align the statute with the new language.
Effective date for amended DSH computations
The amendments to 1923 apply to Medicaid State plan rate years beginning on or after the date of enactment. That means states implementing DSH payments for rate years that start after enactment must follow the new payor‑crediting rules and inclusion criteria when calculating payment adjustments.
State option to use unspent DSH allotments from 2021 onward
For rate years that began on or after Oct. 1, 2021 and before enactment, a state that did not spend its full federal DSH allotment may use the unspent portion to increase DSH payment adjustments for that same rate year. The increases must comply with the amended 1923(g) and the state's total payments for the rate year cannot exceed the state's DSH allotment under subsection (f). This creates a constrained mechanism for retroactive redistribution of federal DSH dollars.
No recoupment; retroactive SPA/waiver authority; reporting
The bill bars states from recouping any payments already made to hospitals that were consistent with 1923(g) as of Oct. 1, 2021. It authorizes CMS to approve retroactive modifications to SPAs or waivers strictly to allow states to increase prior payments, provided requests arrive before the independent certified audit deadline under 1923(j)(2). States that increase prior payments must disclose the increases in the next annual 1923(j)(1) report. Together these provisions set the administrative pathway and transparency rule for retroactive reallocations while tying them to existing audit timing.
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Explore Healthcare in Codify Search →Who Benefits and Who Bears the Cost
Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- Safety‑net hospitals treating large numbers of Medicare‑Medicaid dual eligibles — they can potentially qualify for larger DSH adjustments because Medicare payments will be credited first and hospitals may claim DSH for remaining net losses.
- Hospitals that previously were disadvantaged by the pre‑existing payor crediting rules — the change widens the universe of patients a state can count (subject to the 'incurred costs exceed payments' condition), which may raise some hospitals' DSH shares.
- States with unspent DSH allotments for rate years beginning Oct. 1, 2021 through enactment — they gain a one‑time tool to redirect federal DSH funds to bolster hospital payments in prior years, which can be used for political or policy priorities within the state's existing allotment cap.
- Hospital finance, billing, and compliance teams — they obtain a clearer statutory basis to include Medicare and other payor receipts in DSH calculations, which may help recover uncompensated costs when properly documented.
Who Bears the Cost
- State Medicaid agencies — they face added administrative work to recalculate prior rate‑year payments, prepare retroactive SPAs/waivers, and assemble documentation before audit deadlines; states may also need to choose which hospitals receive redistributed funds.
- Centers for Medicare & Medicaid Services (CMS) — CMS must review and approve retroactive SPA/waiver requests and oversee additional reporting and audit scrutiny, increasing federal administrative burden and enforcement responsibility.
- Hospitals that do not treat many dual eligibles or lack robust cost‑reporting systems — these hospitals may lose relative share of limited DSH dollars if states concentrate redistributed funds on a subset of providers.
- Auditors and compliance vendors — the bill increases complexity in audits (allocation of incurred costs across payors and years), raising monitoring and compliance costs for both public and private auditors.
Key Issues
The Core Tension
The central tension is between targeting DSH support to hospitals that incur uncompensated costs for dual‑eligible patients—by recognizing Medicare and other payments—and preserving tight fiscal controls and auditability over a fixed federal DSH pot; increasing eligibility and retroactive flexibility helps hospitals but raises the risk of uneven redistribution, greater administrative and audit complexity, and disputes over cost allocation.
The bill solves a real problem — compensating hospitals that serve dual‑eligible patients — by explicitly recognizing Medicare and certain other payments in DSH calculations. But it leaves key operational questions unresolved.
The statutory text requires that hospitals show their 'aggregate incurred costs exceed payments' from Medicaid, Medicare, or applicable plans, yet it does not define the allocation method for incurred costs across payors, the costing period, or acceptable accounting approaches. Those absence of definitional guardrails invites divergent state practices and audit disputes and forces CMS into rule‑making or case‑by‑case approvals.
The retroactive SPA/waiver authority creates a narrow window for states to redirect previously unspent federal DSH dollars, which helps states shore up hospitals but also creates a risk of selective redistribution. Because the total DSH allotment cap under subsection (f) remains in place, states that use unspent funds to favor particular hospitals necessarily reallocate away from other providers or future uses.
The bill's reporting requirement is useful but may not be sufficient to deter political favoritism or misuse unless CMS supplements it with more detailed disclosure and audit protocols. Finally, permitting retroactive SPA changes before the independent certified audit deadline reduces one timing barrier but transfers the burden to auditors to detect and validate retroactive remediations, which could complicate final audit opinions.
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