This bill amends title XIX of the Social Security Act to add a statutory definition of “essential health system” and to require the Medicaid and CHIP Payment and Access Commission (MACPAC) to publish an annual list and index of those hospitals. The definition targets subsection (d) hospitals that are non‑Federal, nonprofit or governmental, and that meet specified Medicare‑based measures indicating a high share of Medicaid or uncompensated care.
The designation runs in five‑year blocks and MACPAC must produce percentile rankings at the CBSA, state, and national levels and an average composite index. The statute also directs MACPAC to include payment policy recommendations using these criteria on its agenda — effectively creating a data and analytical foundation for targeted support of safety‑net hospitals without itself authorizing funding changes.
At a Glance
What It Does
The bill adds a new subsection to 1905 defining “essential health system” as a subsection (d) hospital that is non‑Federal and nonprofit/governmental and meets at least one of three Medicare‑based measures in two of the last three fiscal years. It requires MACPAC to publish an annual list of designated hospitals and percentile index values (CBSA, state, national) and to report a composite index.
Who It Affects
Subsection (d) hospitals (IPPS hospitals) that are non‑Federal governmental or private nonprofit entities; state Medicaid programs and federal policymakers who use MACPAC’s data; safety‑net communities that rely on high‑Medicaid or high‑uncompensated‑care hospitals.
Why It Matters
The bill codifies a federal label for high‑volume safety‑net hospitals using Medicare measures and creates an evidence stream that policymakers can use to target payments or regulatory relief. Because the law frames designation but does not itself change payment rules or appropriations, its practical effect depends on follow‑on policy decisions by CMS, states, and Congress.
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What This Bill Actually Does
The bill writes a statutory definition of “essential health system” into section 1905 of the Social Security Act. To qualify, a hospital must be an IPPS‑eligible (subsection (d)) facility, must be either non‑Federal governmental or a private nonprofit hospital, and must demonstrate a sustained concentration of low‑income and uncompensated care.
The sustained requirement is satisfied when the hospital meets at least one of three specific measures in at least two of the three most recent fiscal years.
Those three qualifying measures are: a Medicare disproportionate patient percentage at or above a statutory threshold, a Medicare uncompensated care payment factor at or above a statutory floor, or a state‑adjusted placement in the top 16th percentile on those measures among subsection (d) hospitals within the state. The bill requires the Secretary to use data published with the final IPPS rules for the relevant fiscal years to determine which hospitals meet these tests.Designation as an essential health system is a time‑limited status: it is effective for five years provided the hospital continues to meet the basic structural requirements (subsection (d) status and nonprofit/non‑Federal ownership) each year, and after five years hospitals must be redesignated under the same criteria.
The statute therefore creates a rolling, multi‑year label rather than an annual certification.Separately, the bill adds a new MACPAC responsibility. Within six months of enactment and then annually by August 1, MACPAC must publish (1) a list of essential health systems that meet the statute’s criteria, including hospitals newly qualifying and those designated in one of the prior four years, and (2) percentile index values for each subsection (d) hospital at the CBSA (where applicable), state, and national levels for the Medicare measures used in the statute.
MACPAC must report those index values individually and as a composite average. Finally, the bill amends MACPAC’s agenda to include payment policies that use the essential health system criteria to provide targeted support and safeguard access to the community services those hospitals provide.
The Five Things You Need to Know
The bill defines an “essential health system” as a non‑Federal governmental or private nonprofit subsection (d) hospital that meets at least one qualifying measure in two of the three most recent fiscal years.
It sets a Medicare disproportionate patient percentage threshold of 35 percent as one qualifying metric for designation.
It sets a Medicare uncompensated care payment‑factor threshold of 0.0005 as an alternative qualifying metric.
A hospital also qualifies if its value on the measures is in the top 16th percentile for subsection (d) hospitals in its state (state‑adjusted criterion).
Designation lasts for five years (subject to annual structural checks) and MACPAC must publish a list and CBSA/state/national percentile index values within six months of enactment and annually by August 1 thereafter.
Section-by-Section Breakdown
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Statutory definition of 'essential health system'
This new subsection adds a three‑part eligibility test: (A) the hospital must be a subsection (d) hospital (IPPS‑eligible); (B) it must be non‑Federal governmental or a private nonprofit; and (C) it must meet one of three volume/financial burden criteria in at least two of the three most recent fiscal years. By tying the label to IPPS status and nonprofit/governmental ownership, the statute narrows the pool to general acute‑care hospitals reimbursed under Medicare inpatient prospective payment rules and excludes critical access hospitals, proprietary hospitals, and federal providers.
Three alternative metrics to show safety‑net role
The bill specifies three alternative ways a hospital can demonstrate a safety‑net role: (i) a Medicare disproportionate patient percentage at or above 35 percent; (ii) a Medicare DSH uncompensated care payment factor of 0.0005 or more; or (iii) having a value on either of those measures that places the hospital in the top 16th percentile among subsection (d) hospitals in its state. The Secretary must use data published alongside final IPPS rules for the three most recent fiscal years to make these determinations, which ties the designation to CMS’s existing public datasets and the IPPS rulemaking cycle.
Five‑year designation with annual structural checks
When a hospital is designated an essential health system, that status lasts five years as long as the hospital continues to meet the structural requirements (IPPS and nonprofit/non‑Federal ownership) each year. After five years the hospital must be redesignated under the same criteria. The five‑year block provides multi‑year stability but delays updating designations for rapidly changing local conditions.
MACPAC reporting and the essential health system index
The bill inserts a new paragraph directing MACPAC to prepare and submit within six months, and then annually by August 1, a list of essential health systems and to publish essential health system index values for all subsection (d) hospitals. MACPAC must compute percentile rankings for the statute’s Medicare measures at the CBSA (if applicable), state, and national levels and report those individually and as a composite average. That creates a consistent public dataset that compares hospitals across geographies using Medicare‑based metrics.
MACPAC agenda to include payment policy using criteria
The bill expands MACPAC’s required agenda to include analysis of payment policies that use the essential health system criteria to provide targeted support and to ensure access to the essential community services those hospitals offer. This directs MACPAC to move from data publication to explicitly considering policy options tied to the designation.
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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
- Non‑Federal nonprofit and governmental IPPS hospitals that qualify — they receive a formal federal designation that can be used by states, CMS, or Congress to justify targeted support or priority in program changes.
- Medicaid beneficiaries and low‑income patients in communities served by designated hospitals — designation aims to preserve access by highlighting hospitals that carry disproportionate Medicaid/uncompensated care burdens.
- State Medicaid programs and policymakers — they gain a publicly available index and list to inform targeted payment adjustments, planning, and oversight.
- Advocacy organizations and researchers — MACPAC’s standardized CBSA/state/national index creates a reliable dataset for monitoring safety‑net capacity and disparities over time.
Who Bears the Cost
- MACPAC and CMS — MACPAC must produce the list and index on a specific timeline, increasing analytical workload; CMS must ensure the IPPS datasets used are accessible and consistent for the computations.
- Hospitals excluded from the definition (for‑profit hospitals, critical access hospitals, federal hospitals) — they receive no statutory protection and may face reduced access to any targeted resources tied to the designation.
- State Medicaid agencies and legislatures — if policymakers act on MACPAC’s findings, states may be pressured to reallocate limited Medicaid funds to designated hospitals without additional federal matching dollars.
- Designated hospitals — while designation can raise visibility, hospitals may face administrative burdens to document and defend their status and potential public scrutiny of their financials and charity care practices.
Key Issues
The Core Tension
The central dilemma is whether a Medicare‑centric, statutorily defined label can reliably protect hospitals that serve low‑income patients: the bill aims to identify and shield safety‑net hospitals, but it uses metrics and eligibility cutoffs that may exclude important providers (critical access, for‑profit, federal) and ties designation to data that lags and measures inpatient Medicare activity rather than the full scope of low‑income care.
The bill substitutes Medicare‑based measures for a direct Medicaid measure of safety‑net activity. Medicare disproportionate patient percentage and the DSH uncompensated care factor are administratively convenient because they are already reported for IPPS hospitals, but they can mischaracterize hospitals whose low‑income caseloads skew younger (pediatric) or whose safety‑net role is concentrated in outpatient or behavioral health services not captured in inpatient Medicare measures.
The statutory reliance on IPPS data also excludes critical access hospitals and other non‑IPPS facilities that function as safety‑net providers in rural and frontier areas.
The state‑adjusted top‑16th‑percentile test introduces intra‑state relativity: a hospital can qualify in a low‑income state with one set of values but the same values might not qualify in another state with a different distribution. That produces uneven thresholds across states and can complicate interstate comparisons.
The five‑year designation window gives stability but risks lagging behind rapid local changes in payer mix or closures. Finally, the statute creates a designation and a data pipeline but does not itself create funding, payment adjustments, or enforcement mechanisms; its practical effect depends on subsequent policy actions by CMS, MACPAC recommendations being adopted, or congressional appropriations.
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