Audit of Selected States' Medicaid Disproportionate Share Hospital Programs

EXECUTIVE SUMMARY:

This report consolidates the results of 10 individual reviews of States' Medicaid disproportionate share hospital (DSH) programs, conducted at the request of CMS.

 Two common objectives of our individual reviews were to determine whether (1) States complied with the hospital-specific DSH limits imposed by section 1923(g) of the Social Security Act (the Act) and (2) hospitals returned any DSH payments to States through intergovernmental transfers of funds.  Nine of the ten States reviewed did not comply with the hospital-specific DSH limits imposed by section 1923(g) of the Act.  As a result, DSH payments exceeded the hospital-specific limits by approximately $1.6 billion ($902 million Federal share), including:  (1) four States that made approximately $679 million in excess DSH payments based primarily on historical costs rather than actual costs; and (2) eight States that made approximately $223 million in excess DSH payments because they included unallowable costs in their calculations of hospital-specific limits.  As to our second objective, three States required hospitals to return DSH payments totaling approximately $3.6 billion through intergovernmental transfers.

 We recommended that CMS: (a) ensure that the monetary recommendations concerning DSH payments that exceeded the hospital-specific limits have been resolved; (b) establish regulations requiring States to (1) implement procedures to ensure that future DSH payments are adjusted to actual incurred costs, (2) incorporate these adjustment procedures into their approved State plans, and (3) include only allowable costs as uncompensated care costs in their DSH calculations; and (c) strengthen its review and approval of State plans to ensure consistency with Federal requirements and use the results of audits conducted under MMA as part of its review process.  In comments on the draft report, CMS agreed with our recommendations but interpreted our first recommendation to apply only prospectively, not as a requirement to seek recovery of the excess DSH payments we had identified.  We maintain that the Federal share of these excess payments should be recouped.