The bill amends section 1923(g) of the Social Security Act to change how states calculate disproportionate share hospital (DSH) payment adjustments under Medicaid. It adds payments made under Medicare (title XVIII) and other defined “applicable plans” into the calculations that determine which patients and costs qualify a hospital for DSH adjustments, adjusts the eligibility language for individuals counted in those calculations, and removes an existing paragraph in the statute to streamline the text.
Separately, the bill gives states a temporary option to use previously unspent DSH allotments from Medicaid state plan rate years beginning on or after October 1, 2021 and before enactment to increase payment adjustments, subject to the statutory caps and audit deadlines; it also permits limited retroactive State Plan or waiver modifications and adds a reporting requirement. For hospitals and state Medicaid programs, these are practical fixes that can increase federal DSH dollars to safety‑net providers but raise operational, audit, and federal fiscal questions for CMS and states alike.
At a Glance
What It Does
It revises the statutory DSH calculation in 42 U.S.C. 1396r–4(g) to include payments under title XVIII and other defined payors and to change which Medicaid‑eligible individuals count toward DSH adjustments. It removes one statutory paragraph and clarifies cross‑references. It also authorizes states, subject to caps and audit timelines, to apply unspent past DSH allotments to increase prior payment adjustments and allows limited retroactive State Plan or waiver modifications for that purpose.
Who It Affects
Safety‑net hospitals paid through DSH adjustments, state Medicaid agencies responsible for DSH calculations and audits, and CMS which administers DSH allotments and approves State Plan changes. Medicare payors are implicated only to the extent their payments are added into state DSH calculations; auditors and compliance officers will face new reconciliation tasks.
Why It Matters
The change can increase federal DSH dollars flowing to hospitals that treat high numbers of low‑income and dual‑eligible patients by altering the denominator and eligibility rules used to calculate adjustments. It also creates a narrow pathway for states to reclaim and reallocate previously unspent federal DSH allotments, which could materially affect state budgeting and federal outlays for uncompensated care.
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What This Bill Actually Does
The bill rewrites part of the Medicaid DSH statute so that hospitals’ DSH eligibility and payment calculations account for Medicare payments and other payor sources that previously were not explicitly included. Practically, that means when a state computes which patients count toward a hospital’s DSH adjustment and whether the hospital’s incurred costs exceed payments, the state must consider funds received from Medicare and other specified payors before determining Medicaid’s role as the payor of last resort.
The drafters also adjust the statutory language describing which individuals count in the DSH calculation to capture those for whom Medicaid is the payor after application of Medicare or other applicable plans, but only when the hospital’s aggregate incurred costs exceed total payments. That narrows the legal trigger to situations where hospitals truly carry uncompensated or undercompensated costs despite other payors’ contributions.To address past under‑spending, the bill gives states a limited option to apply unspent DSH allotments from state plan rate years that began on or after October 1, 2021 and before enactment to increase payments for those prior years.
The option is constrained: any retroactive increases must still respect the overall DSH allotment cap for the state and be consistent with the amended statutory rules. The bill bars states from recouping payments already made if those payments complied with the prior (October 1, 2021) statutory standard, allows retroactive State Plan or waiver amendments for this narrow purpose up until the certified audit deadline, and requires states to include such increases in their next annual DSH report.
The Five Things You Need to Know
The bill amends 42 U.S.C. 1396r–4(g) to require inclusion of payments made under title XVIII (Medicare) and by an “applicable plan” in DSH calculations.
It revises the patient eligibility language so that individuals count toward DSH only when Medicaid is the payor after Medicare/applicable plan payments and the hospital’s incurred costs exceed combined payments.
It deletes the existing paragraph (2) of section 1923(g) and redesignates paragraph (3) as paragraph (2), with a corrected cross‑reference.
States may use unspent DSH allotments from Medicaid state plan rate years beginning Oct. 1, 2021 through enactment to increase prior payment adjustments, provided increases do not exceed the state’s statutory allotment cap.
A State may retroactively modify a State Plan provision or waiver to effect such increases, but only if it submits the request before the independent certified audit due date and reports the change in the next annual DSH report.
Section-by-Section Breakdown
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Short title
Declares the Act will be known as the "Save Our Safety‑Net Hospitals Act of 2025." It has no operative policy effect but frames the bill’s purpose for stakeholders and administrative guidance.
Include Medicare and applicable‑plan payments in calculations
This provision instructs states to count payments made under title XVIII (Medicare) and payments by an "applicable plan" (a statutory term carried from section 1862(b)(8)(F)) when determining hospital payments for services used in the DSH computation. For compliance teams, that creates an additional reconciliation line: DSH calculations must now start from gross incurred costs minus all other payor payments including Medicare, not from Medicaid payments alone. Operationally, hospitals and states will need to exchange detailed payment and cost data across programs to apply the new rule.
Narrowed counting rule for eligible individuals
The bill alters the phrase describing which individuals count toward the disproportionate share percentage: only those for whom Medicaid is the payor after applying Medicare or other applicable plan benefits, and only when the hospital’s aggregate incurred costs exceed the payments received from Medicaid, Medicare, or applicable plans. This turns the eligibility test into a residual‑cost measure — hospitals must show uncompensated or undercompensated aggregate costs after other payors have paid before gaining the benefit of DSH adjustments.
Remove paragraph (2) and redesignate existing paragraph (3)
The bill removes a now‑redundant paragraph and redesignates paragraph (3) as (2), while correcting an internal cross‑reference. That change simplifies statutory text but also ensures that the new counting and payment inclusions integrate with the remainder of section 1923(g) without creating a mis‑referenced rule that could disrupt CMS guidance or state computations.
State option to apply unspent DSH allotments and limited retroactivity
This section applies the amendments prospectively to state plan rate years beginning on or after enactment, but it allows states to use prior unspent allotments from rate years beginning Oct. 1, 2021 through enactment to increase payments for those years. It caps such increases at the state’s DSH allotment for the applicable federal fiscal year, prohibits recoupment of payments already made that complied with the October 1, 2021 rules, authorizes CMS to approve retroactive State Plan/waiver modifications for this limited purpose (with a submission deadline tied to the independent certified audit date), and requires inclusion of any increased adjustments in the next annual DSH report.
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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 with high shares of Medicaid and dual‑eligible patients — They stand to receive larger DSH adjustments because Medicare and other payor receipts will be part of the calculation that establishes uncompensated cost.
- Hospitals that previously missed DSH thresholds because other payors reduced the Medicaid payment role — The residual‑cost test can bring more patients/costs back into DSH eligibility when aggregate incurred costs exceed combined payments.
- States with unspent DSH allotments for rate years beginning Oct. 1, 2021–enactment — These states can redeploy federal funds they did not spend to increase prior payments, easing pressure on state hospital budgets without new appropriations.
- Hospitals’ finance and compliance teams — The bill reduces some legal ambiguity about how other payors interact with DSH calculations, which can help with revenue forecasting if systems and data feeds are adapted.
Who Bears the Cost
- State Medicaid agencies — They must implement new cross‑program reconciliations, seek CMS approval for retroactive amendments where appropriate, and meet stricter audit coordination deadlines.
- CMS and federal administrators — CMS will bear administrative workload to review retroactive modifications, reconcile Medicare and Medicaid payment records, and ensure state compliance with the amended statute.
- Federal budget/fiscal exposure — Including Medicare and other payor dollars in the calculation and allowing use of unspent allotments could increase federal DSH outlays or change timing of payments, with implications for deficit oversight and appropriations planning.
- Hospitals with insufficient documentation or weak cost reporting — Providers that cannot demonstrate aggregate incurred costs exceeding combined payments may not qualify for the expanded adjustments, even if they treat many low‑income patients, increasing the risk of uneven distribution.
Key Issues
The Core Tension
The central dilemma is straightforward: increase and better‑target federal DSH dollars to preserve safety‑net hospitals versus maintain fiscal controls and audit finality that prevent overpayment and gaming. The bill eases access to federal funds for hospitals with uncompensated costs but does so by layering in cross‑program accounting and retroactivity that make oversight harder and federal fiscal exposure less predictable.
Two practical tensions flow from the bill’s mechanics. First, folding Medicare and other payor payments into the DSH calculation improves targeting to hospitals with real uncompensated costs, but it also requires complex cross‑program data reconciliation.
States and hospitals operate on different claims, payment, and cost reporting cadences; aligning those feeds for certified audits will increase compliance costs and open a window for disputes over which payments count and when. CMS will need clear data standards and enforcement guidance to avoid protracted state‑by‑state litigation about methodology.
Second, the retroactivity pathway and permission to use unspent allotments create budgetary and audit risks. Allowing states to retroactively modify State Plans and reallocate prior federal allotments helps channel funds to hospitals now, but it weakens the finality of audits and could incentivize states to delay using allotments to retain flexibility.
The prohibition on recouping payments already made only for payments lawful under the prior standard complicates recovery when later reinterpretations arise. Finally, the statute’s reliance on the term "applicable plan" as defined elsewhere (section 1862(b)(8)(F)) creates potential gaps: if CMS interprets that term narrowly, some payor payments may be excluded; interpreted broadly, the federal fiscal exposure grows.
Implementing this bill will therefore require rulemaking or detailed CMS guidance about (a) precisely which Medicare and other plan payments count and how to document them, (b) how states should apply the residual‑cost test in practice, (c) timing and content requirements for retroactive State Plan modifications, and (d) how CMS will audit and, if necessary, resolve disputes without creating large scale recoupments or fiscal shocks.
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