This bill amends the Medicaid disproportionate share hospital (DSH) provisions in the Social Security Act to establish a permanent DSH allotment for the State of Tennessee beginning with fiscal year 2026. Rather than leaving Tennessee’s allotment tied to the existing DSH tables or demonstration project terms, the bill sets a defined baseline and an automatic annual adjustment.
For hospitals and state budget officials, the change is straightforward: it replaces prior uncertainty about Tennessee’s federal DSH support with a durable, statutory number and a predictable indexing mechanism. For federal policymakers and hospitals outside Tennessee, the bill raises questions about allocation mechanics, aggregate DSH funding, and precedent for state-specific carve-outs in Medicaid law.
At a Glance
What It Does
The bill inserts a new subparagraph (G) into 42 U.S.C. 1396r–4(f)(3) that (1) guarantees Tennessee a DSH allotment starting in FY2026, (2) sets the FY2026 base equal to Tennessee’s 2015 DSH allotment as defined in paragraph (6)(A)(vi) and thereafter increases that allotment by the annual percentage change in the CPI-U, and (3) treats Tennessee as a “low DSH State” for future indexed increases under paragraph (5)(B).
Who It Affects
Directly affected parties include Tennessee hospitals that rely on Medicaid DSH payments (safety-net, rural, and public hospitals), the Tennessee Medicaid agency (TennCare), and CMS’s Medicaid payment operations. Indirectly affected are hospitals and Medicaid programs in other states because the change alters a state-specific allocation within the federal DSH framework.
Why It Matters
The bill converts an ad hoc, demonstration-related funding situation into a statutory entitlement for one state, creating predictable revenue for Tennessee hospitals while shifting budgetary and allocation questions to the federal level. It also establishes a legislative precedent for one-off, state-specific DSH remedies and ties increases to a general inflation index rather than health-sector metrics.
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What This Bill Actually Does
The bill adds a narrowly tailored provision to the Medicaid DSH statute that insulates Tennessee from the formulas or demonstration terms that previously determined its DSH allotment. It accomplishes this by creating a new subparagraph in the statutory DSH language that operates independently of the usual table-based allotment calculations and demonstration waivers.
The text requires Tennessee to receive a DSH allotment beginning in fiscal year 2026 and continuing thereafter.
For the initial year (FY2026) the bill fixes the allotment amount to a historical benchmark: Tennessee’s DSH allotment as defined by paragraph (6)(A)(vi) for fiscal year 2015. That dollar figure then becomes the new base and is increased in subsequent years by the percentage change in the consumer price index for all urban consumers (CPI-U, all items, U.S. city average).
The bill therefore creates an administrable calculation: identify the 2015 allotment amount from the statute, apply the CPI-U percentage change each year, and that yields the annual allotment for Tennessee.In addition, the bill changes Tennessee’s classification for the purpose of future increases. It directs that Tennessee be treated as a low DSH State under the statutory scheme that controls how some states’ allotments grow.
Practically, that means Tennessee will receive increases under the same mechanism used for low DSH states rather than whatever special treatment or reductions it had under TennCare demonstration terms. The bill does not add new reporting requirements or specify offsets; it leaves the mechanics of CMS payment processing and the budgetary treatment of the allotment to existing Medicaid administration rules and appropriations processes.
The Five Things You Need to Know
The bill amends 42 U.S.C. 1396r–4(f)(3) by adding a new subparagraph (G) with three operative clauses (i)–(iii).
For fiscal year 2026 the statute sets Tennessee’s DSH allotment equal to Tennessee’s DSH allotment as defined in paragraph (6)(A)(vi) for fiscal year 2015, using that historical dollar amount as the new baseline.
After FY2026, Tennessee’s allotment is increased annually by the percentage change in the CPI‑U (all items; U.S. city average).
The bill explicitly overrides the allotment table in paragraph (2) and any terms in the TennCare Demonstration Project that had affected Tennessee’s DSH allotment.
For any fiscal year after FY2026, Tennessee is treated as a State described in 1923(f)(5)(B) (a “low DSH State”) and receives increases under the statutory method that applies to such States.
Section-by-Section Breakdown
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Short title
This single-line provision gives the Act its public name: the “Delivering Support for Hospitals in Tennessee Act” or the “DSH in Tennessee Act.” It has no operative effect on program administration but supplies the statutory caption under which the amendment will be referenced.
Adds a Tennessee-specific DSH restoration clause
The bill edits 42 U.S.C. 1396r–4(f)(3) to add a new subparagraph (G). That placement makes the Tennessee carve-out part of the statutory DSH allotment rules rather than an administrative waiver or budgetary rider. Making this a statutory insertion reduces CMS discretion: the agency must follow the statutory language when computing and distributing Tennessee’s allotment each year.
Guarantees an ongoing allotment beginning FY2026
Clause (i) states the basic operative commitment: Tennessee shall receive a DSH allotment under the identified statute beginning with FY2026 and for each succeeding fiscal year. Legally, this converts a previously contingent or demonstration-tied payment stream into an ongoing statutory entitlement for Tennessee.
Sets the FY2026 baseline and CPI-U indexing
Clause (ii) fixes FY2026’s allotment equal to Tennessee’s 2015 allotment as specified in paragraph (6)(A)(vi) and directs annual increases by the percentage change in the CPI‑U (all items; U.S. city average). Practically, CMS or the Treasury Office that calculates allotments will need to pull the 2015 statutory figure, then apply CPI‑U growth factors each year. This design favors predictability but ties increases to a broad consumer inflation measure rather than medical-cost-specific indices.
Reclassifies Tennessee for future increase calculations
Clause (iii) directs that after FY2026 Tennessee be treated as a State described in paragraph (5)(B) (the statutory category often called “low DSH States”) and receive increases under the same method those states use. That reclassification will alter the growth path available to Tennessee compared with whatever TennCare demonstration adjustments had applied previously and has implications for how large future increases can be.
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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
- Tennessee safety‑net and public hospitals — They gain predictable federal DSH revenue that can support uncompensated care, narrow operating shortfalls, and stabilize margins for hospitals that treat many Medicaid and uninsured patients.
- TennCare (Tennessee’s Medicaid agency) — The state receives a durable federal funding baseline, which reduces uncertainty in state budgeting and planning for hospital payments and provider rates.
- Low‑income and uninsured Tennessee patients — By stabilizing hospital revenue tied to uncompensated care, the bill helps preserve access to inpatient services in communities that rely on safety‑net hospitals.
- County and municipal public hospitals in Tennessee — Institutions that depend heavily on DSH payments will see a more reliable revenue stream, which can affect decisions about service lines and staffing.
- Hospital systems considering investment or closure decisions — Predictable federal support lowers financial risk for systems evaluating capital expenditures or whether to keep marginal facilities open.
Who Bears the Cost
- Federal government / federal Medicaid spending — Creating a statutorily guaranteed, indexed allotment increases federal obligations relative to a baseline where Tennessee’s allotment would have remained tied to other formulas or demonstration terms.
- Other states’ Medicaid programs or hospitals — If Congress or CMS does not increase aggregate DSH funding to cover this carve‑out, the fixed distributional structure of DSH could shift relative shares and reduce allocations available to other states.
- CMS administrative operations — CMS must implement the special calculation, ensure correct indexing and classification, and reconcile the carve‑out with existing allotment tables and payment systems, producing administrative burden and complexity.
- Federal budget planners and appropriators — The legislative guarantee creates an on‑budget obligation that appropriators may need to account for, potentially crowding out other priorities or requiring offsets if treated as a net new cost.
Key Issues
The Core Tension
The central dilemma is between guaranteeing predictable, ongoing federal support to stabilize safety‑net hospitals in one state and maintaining an equitable, administrable national DSH allocation system under fiscal constraints: the bill protects Tennessee hospitals but shifts allocation and fiscal pressure upward, raising questions about fairness, indexing adequacy, and whether Congress should address systemic DSH rules instead of enacting state‑specific fixes.
The bill solves a targeted funding problem for Tennessee hospitals by hardwiring a baseline and an inflation adjustment, but it leaves several practical and policy questions open. It ties increases to the CPI‑U, a broad consumer inflation measure that often undercounts health‑care price growth; over time that divergence could erode the real value of the allotment relative to hospital costs.
The statutory insertion also does not identify a funding offset or an adjustment to the national DSH framework, so the net fiscal impact depends on how Congress and CMS treat the change in appropriations and allotment accounting.
Another unresolved issue is distributional fairness and precedent. Making a single‑state, statutory correction invites other states to seek similar carve‑outs, which complicates central allocation rules designed to distribute limited federal DSH resources across states based on statutory formulas.
Finally, administrative implementation will require CMS to reconcile this new statutory path with existing DSH tables, TennCare demonstration records, and state reporting — and the bill does not add reporting, audit, or reconciliation procedures, which could produce disputes about the baseline figure or indexing calculations.
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