Medicare DSH and 340B: What Hospitals Should Be Watching as Medicaid Changes Approach
Medicare Disproportionate Share Hospital (DSH) reimbursement and the 340B Drug Pricing Program remain important financial considerations for hospitals serving low-income and underserved populations. However, several developing reimbursement issues, combined with Medicaid changes under the One Big Beautiful Bill Act (OBBBA), could create additional financial pressure for hospitals over the next several years.
As Medicaid eligibility and financing requirements change, hospitals should be evaluating how these developments could affect their Medicare DSH percentages, uncompensated care payments, and continued eligibility for the 340B program.
Medicaid Changes Could Affect Medicare DSH
One of the biggest concerns surrounding OBBBA is the potential reduction in Medicaid enrollment. Beginning January 1, 2027, many adults enrolled through Medicaid expansion will be subject to new community engagement requirements, generally requiring 80 hours per month of qualifying work, education, or community service. More frequent eligibility redeterminations and other eligibility changes could also result in individuals losing Medicaid coverage.
For hospitals, these changes could have a direct impact on reimbursement. Medicaid patient days are a component of the Medicare DSH calculation, and reductions in eligible Medicaid days could lower a hospital's Medicaid fraction and overall DSH patient percentage. Hospitals could also experience increases in uncompensated care as individuals lose coverage and become uninsured.
What Should Hospitals Be Doing Now?
With these changes approaching, hospitals should consider several proactive steps:
• Validate Medicare DSH calculations: Review SSI percentages, Medicare days, and Medicaid days to ensure all eligible patient days are captured accurately.
• Monitor 340B eligibility: Model potential changes in the DSH percentage, particularly for hospitals approaching their specific percentage threshold.
• Review Worksheet S-10: Ensure uncompensated care reporting is accurate and supported by appropriate documentation.
• Evaluate Medicaid exposure: Analyze payer mix, Medicaid utilization, and potential coverage losses to understand the financial implications of OBBBA.
• Assess reimbursement opportunities: Review cost reports, DSH calculations, and other reimbursement opportunities to identify areas where additional reimbursement may be available.
• Model financial scenarios: Develop best-case, expected, and downside projections to understand how Medicaid changes could affect reimbursement and hospital operating margins.
Looking Ahead
The combination of Medicaid eligibility changes, potential reductions in Medicaid funding, and evolving 340B reimbursement policies makes it increasingly important for hospitals to take a proactive approach to reimbursement. Hospitals should not wait until these changes are fully reflected in their financial results to evaluate their exposure.
Accurate data, properly supported cost reports, and ongoing monitoring of Medicare DSH and 340B eligibility will be critical to protecting reimbursement and maintaining financial stability as the healthcare reimbursement landscape continues to evolve.
