Georgia Medicare DSH Adjustment 2026 Guide

Ask the CFO of any major Georgia safety-net hospital which single Medicare provision keeps the lights on, and the answer is almost always the Disproportionate Share Hospital (DSH) adjustment. Authorized at Section 1886(d)(5)(F) of the Social Security Act since the mid-1980s, the DSH adjustment increases Medicare Inpatient Prospective Payment System (IPPS) payments to hospitals such as Grady Memorial in Atlanta, Phoebe Putney in Albany, and AU Medical Center in Augusta that serve a disproportionate share of low-income patients. The rationale is straightforward: safety-net hospitals serve more uninsured and underinsured patients, recover less per case on average, and yet must maintain the staffing and capacity to serve everyone who walks through the emergency room door. Without DSH, the financial math does not work.

For Georgia, DSH is enormous and the stakes are high. Grady Memorial Hospital, Atlanta's largest safety-net public hospital, has a Disproportionate Patient Percentage above 50 percent in typical years, qualifying it for the maximum DSH adjustment available under federal law. Phoebe Putney serves southwest Georgia's rural and uninsured populations. AU Medical Center serves the Augusta region as both an academic medical center and a substantial Medicaid provider. Memorial Health Savannah, Atrium Health Floyd, Northeast Georgia Medical Center, Wellstar Cobb, Wellstar Kennestone, and dozens of rural and community Georgia hospitals all participate in Medicare DSH and rely on the payment stream for their operations.

The Affordable Care Act of 2010 fundamentally restructured Medicare DSH through Section 3133, effective fiscal year 2014. The ACA reduced "empirically justified" DSH (the traditional formula) to 25 percent of the pre-ACA amount and redirected the remaining 75 percent to a new Uncompensated Care Pool distributed based on each hospital's reported uncompensated care costs (Medicare cost report Worksheet S-10). The Supreme Court's 2022 ruling in Empire Health Foundation v Becerra addressed how the Medicare SSI fraction is calculated, affecting DSH amounts at many hospitals. The Allina Health Services litigation over years addressed the inclusion of Medicare Advantage days in the SSI fraction. Continuing litigation addresses Section 1115 demonstration days inclusion, Worksheet S-10 calculation methodology, and other technical issues.

This guide is for Georgia hospital administrators, CFOs, compliance officers, healthcare advocates, and Medicare beneficiaries served by safety-net hospitals. We explain the Section 1886(d)(5)(F) framework, the two-component DPP formula (Medicare SSI fraction plus Medicaid fraction), the 15 percent threshold, the Section 3133 ACA restructuring, the Uncompensated Care Pool methodology, the Worksheet S-10 reporting, the major court rulings, the state Medicaid DSH parallel, and how Georgia DSH hospitals participate.

The statute: Section 1886(d)(5)(F)

The Medicare DSH adjustment was first authorized through the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA 1985, Public Law 99-272), with implementation provisions in subsequent legislation. The current statutory provision is at Section 1886(d)(5)(F) of the Social Security Act.

Statutory rationale

The statute recognizes that hospitals serving disproportionate share of low-income patients face higher operating costs because:

• More uninsured patients with limited or no reimbursement
• More Medicaid patients with reimbursement below cost
• Sicker patient populations on average (uninsured patients often delay care, presenting with more advanced disease)
• Higher costs of community-benefit services (free clinics, outreach programs)
• More uncompensated emergency department care

Without DSH, safety-net hospitals would face financial pressures that could lead to:

• Reduced services
• Hospital closure (especially in rural and urban underserved areas)
• Reduced access to care for low-income communities

Structure of the adjustment

DSH is paid as a percentage adjustment to base IPPS payments. The adjustment percentage depends on the hospital's Disproportionate Patient Percentage (DPP).

The Disproportionate Patient Percentage (DPP)

The DPP is the foundational metric for DSH. It is the sum of two fractions, each measuring a different dimension of low-income patient service.

Medicare SSI Fraction

The Medicare SSI fraction measures the portion of Medicare inpatient days attributable to patients who are also eligible for Supplemental Security Income (SSI).

SSI Fraction = (Patient days for patients entitled to Medicare Part A AND eligible for SSI) / (Total patient days for patients entitled to Medicare Part A)

SSI is a federal program for low-income elderly, blind, and disabled people. Medicare beneficiaries who are also SSI-eligible are by definition low-income. The SSI fraction therefore measures the portion of Medicare patients who are low-income.

Medicaid Fraction

The Medicaid fraction measures the portion of total inpatient days attributable to Medicaid-eligible patients who are not also Medicare beneficiaries.

Medicaid Fraction = (Patient days for patients NOT entitled to Medicare Part A and eligible for Medicaid) / (Total patient days for ALL patients)

The Medicaid fraction asymmetry (different denominator from SSI fraction) is statutory. The combined formula was designed to capture both Medicare-eligible low-income patients (via SSI) and non-Medicare low-income patients (via Medicaid).

DPP calculation

DPP = SSI Fraction + Medicaid Fraction

For a hospital with:

• SSI fraction: 18%
• Medicaid fraction: 25%
• DPP: 43%

Data sources

• SSI Fraction: Calculated by CMS using MEDPAR (Medicare Provider Analysis and Review) data matched against SSA SSI eligibility records. CMS publishes SSI fractions annually for each hospital.
• Medicaid Fraction: Calculated by the hospital from its own records and reported on the Medicare cost report. State Medicaid eligibility data is the primary source.

The 15 percent threshold

A hospital must have a DPP of at least 15 percent to qualify for any Medicare DSH adjustment. Below 15 percent: no DSH. At or above 15 percent: DSH adjustment scales upward.

The threshold's effect

Hospitals just below 15 percent receive zero DSH; hospitals just above receive a small positive adjustment. This creates a "cliff" at the threshold that hospitals near the line work to avoid.

Hospital strategic implications

For hospitals near the threshold, accurate accounting of SSI and Medicaid days can determine eligibility. Hospitals invest substantial resources in:

• Verifying SSI eligibility for Medicare patients
• Ensuring complete Medicaid day identification
• Documenting Section 1115 demonstration days
• Cost report preparation and audit defense

The DSH adjustment formula

For hospitals above the 15 percent threshold, the DSH adjustment percentage is calculated using statutory formulas that vary by hospital size and urban/rural status.

Urban hospitals with 100+ beds

The DSH adjustment is calculated using a two-piece formula:

For DPP between 15% and 20.2%:

• DSH percentage = 2.5% + 65% × (DPP - 15%)

For DPP at or above 20.2%:

• DSH percentage = 5.88% + 82.5% × (DPP - 20.2%)

The percentage is capped at certain levels for very high DPP hospitals.

Worked DSH calculation

A urban hospital with 100+ beds and DPP of 35%:

• DSH percentage = 5.88% + 82.5% × (35% - 20.2%)
• DSH percentage = 5.88% + 82.5% × 14.8%
• DSH percentage = 5.88% + 12.21% = 18.09%

This 18.09% is added to base IPPS payments. For a hospital with $100 million in base IPPS payments annually, DSH would add approximately $18 million.

Small urban and rural hospitals

Small hospitals (<100 beds) and rural hospitals have different DSH provisions including:

• Hospital-specific DSH calculations
• Rural floor adjustments
• Special provisions for hospitals at various size and rurality categories

The framework is complex and reflects multiple legislative additions over time.

Section 4505 Balanced Budget Act 1997 expansion

The Balanced Budget Act of 1997 (Public Law 105-33), Section 4505, materially expanded DSH eligibility and methodology for hospitals serving low-income patients. Before BBA 1997, the DSH formula left many community and rural hospitals with substantial Medicaid populations either ineligible or receiving only nominal adjustments. The BBA reforms broadened the framework by:

• Modifying small urban hospital adjustment formulas
• Adjusting rural hospital DSH calculations
• Creating tiered formulas based on hospital size
• Extending DSH adjustments to additional hospital categories

These changes substantially affected Georgia DSH eligibility, especially for hospitals in Macon, Columbus, Savannah, Albany, Augusta, and rural communities throughout the state. Hospitals that previously qualified only marginally now received meaningful DSH support.

Why the formula is two-piece (the "kink point")

The two-piece formula creates a "kink point" at 20.2 percent DPP. The mathematical structure has policy reasons:

• Below 20.2 percent: a moderate adjustment to compensate for moderately disproportionate share. The 65% slope captures the marginal cost of serving additional low-income patients at hospitals that are not deeply disproportionate.
• At or above 20.2 percent: a steeper adjustment (82.5% slope) reflecting that hospitals deeply disproportionate face exponentially greater financial pressure. The marginal additional low-income patient costs more (in average uncompensated cost) for an already-stretched safety-net hospital.

The kink point and slope coefficients reflect empirical analysis from the 1980s and 1990s about the relationship between DPP and per-case operating costs. CMS and Congress have periodically revisited these coefficients but the basic two-piece structure has remained intact.

Statutory and regulatory cap

The DSH adjustment percentage is subject to statutory caps. For most urban hospitals, the DSH percentage is effectively capped around the high-30s percent of base IPPS payments. The cap means that hospitals with extraordinarily high DPP (above approximately 56-58 percent) do not receive proportionally higher DSH adjustments. Grady Memorial Hospital, with DPP typically above 50 percent, often hits or approaches the statutory cap. The cap is an important policy lever that prevents DSH from becoming a runaway fiscal commitment but it also means the very highest-DPP hospitals are not fully compensated for their disproportionate share burden.

How DSH applies in practice

For each Medicare inpatient discharge, Medicare's per-discharge payment is calculated as: base IPPS rate × DRG weight × adjustment factors. DSH and IME are both percentage adjustments applied to this base. The actual claim-by-claim payment includes the DSH adjustment automatically; final reconciliation occurs through the Medicare cost report at year-end. Grady's $50-80+ million in DSH and UCP payments arrives partially through claim-level DSH adjustments throughout the year, partially through annual UCP distribution, and partially through cost report settlement.

Section 3133 ACA restructuring (effective FY 2014)

The Affordable Care Act of 2010 (Public Law 111-148) Section 3133 fundamentally restructured Medicare DSH. The restructuring took effect in fiscal year 2014.

25% / 75% split

Under the restructured framework:

• Hospitals receive 25% of what they would have received under the pre-ACA empirical DSH formula
• The remaining 75% is pooled into the Uncompensated Care Pool (UCP)
• The UCP is distributed using a separate methodology based on each hospital's uncompensated care costs

Rationale for restructuring

The ACA expanded health insurance coverage, expecting that more people would have coverage and less uncompensated care would be needed. Reducing DSH would correspondingly reduce as coverage expanded. The 25/75 split was meant to:

• Maintain some empirical DSH (tied to traditional formula)
• Shift major DSH funding to uncompensated care reporting (more closely tied to actual uncompensated care costs)
• Allow annual adjustment of the UCP size based on actual changes in the uninsured rate

UCP size adjustment ("Factor 2")

The total UCP each year is adjusted using a "Factor 2" that accounts for changes in the national uninsured rate. As coverage expands (more people insured), the UCP shrinks. As coverage contracts, the UCP grows.

The ACA expected substantial uninsured rate reduction. The actual reduction has been substantial but variable. Medicaid expansion (which Georgia has not adopted) has been a major variable.

UCP distribution ("Factor 3")

Each hospital's share of the UCP is calculated using "Factor 3":

Hospital's UCP share = (Hospital's uncompensated care costs) / (All hospitals' uncompensated care costs)

The numerator and denominator are drawn from Medicare cost report Worksheet S-10 data, with various adjustments.

Worksheet S-10

Medicare cost report Form CMS-2552 includes Worksheet S-10 specifically for uncompensated care reporting. Hospitals report:

• Charity care costs
• Bad debt expense (with various adjustments)
• Medicaid shortfall (Medicaid revenue minus Medicaid costs)
• Other uncompensated care components

Worksheet S-10 was modified for the ACA restructuring and has been refined through subsequent rulemaking.

Transition and full implementation

The ACA's DSH restructuring was phased in:

FY 2014: First year of restructuring

25%/75% split implemented. Initial UCP distribution used a transition methodology based on Medicaid and SSI days rather than Worksheet S-10 (because Worksheet S-10 data was not yet sufficiently reliable).

FY 2015-FY 2017: Transition years

UCP distribution continued using transition methodology. Worksheet S-10 was being refined and audited.

FY 2018: Worksheet S-10 implementation

UCP distribution transitioned to Worksheet S-10-based methodology. This was a significant change and resulted in shifts in hospital UCP payments.

FY 2019 onward: Full Worksheet S-10

Continued refinement of Worksheet S-10 methodology and audit processes.

What Worksheet S-10 actually requires hospitals to report

Worksheet S-10 of Form CMS-2552 is the Medicare cost report worksheet specifically devoted to uncompensated care. The worksheet has multiple lines that hospitals complete annually:

• Line 20 (charity care): total charity care provided to patients meeting hospital charity care policy criteria
• Line 21 (uninsured discounts): discounts provided to uninsured patients beyond charity care
• Line 22 (subset for under-insured): charity care for under-insured patients, if any
• Line 23 (total charity care subset): aggregation lines
• Line 26 (cost-to-charge ratio applied): hospitals report charges and Worksheet S-10 converts to costs using the hospital's cost-to-charge ratio
• Line 27 (Medicaid shortfall): Medicaid payments received minus Medicaid costs
• Line 28 (bad debt for Medicare patients with state/local indigent care funding)
• Line 29 (other applicable items)
• Line 30 (total uncompensated care costs): aggregation for UCP calculation

The worksheet is significantly more complex than its predecessor proxy data (Medicaid days and SSI days). The complexity means that small differences in hospital reporting decisions can have million-dollar effects on UCP allocation, which has driven substantial audit activity by MACs.

Audit of Worksheet S-10

Medicare Administrative Contractors audit Worksheet S-10 reports. Palmetto GBA, which is the MAC for Georgia hospitals, has been substantially involved in Worksheet S-10 audit. The audit examines:

• Whether charity care policy was followed for reported charity care
• Whether the hospital's charity care policy meets reasonable standards
• Whether the cost-to-charge ratio is properly calculated
• Whether reported uninsured discounts are real (not fictitious or duplicates of charity care)
• Whether Medicaid shortfall reporting is accurate
• Whether bad debt reporting is properly distinguished from charity care

Hospitals routinely engage outside firms (BKD, Eide Bailly, CliftonLarsonAllen, KPMG, RSM, McGuireWoods Consulting) for Worksheet S-10 preparation, audit defense, and compliance support. The financial stakes are high enough that this consulting market is mature and active.

Worksheet S-10 dispute trends

Common Worksheet S-10 disputes include:

• Whether specific patient encounters meet the hospital's charity care policy
• Whether the cost-to-charge ratio used is appropriate
• Whether certain Medicaid services should be included in Medicaid shortfall
• Whether bad debt was properly converted from charges to costs
• Whether dual-eligible patient days are properly classified

CMS has issued multiple cost reporting clarifications. Some hospitals have appealed Worksheet S-10 adjustments through the Provider Reimbursement Review Board (PRRB) process and federal court. The PRRB is administered by CMS and reviews provider cost reporting disputes; PRRB decisions may be appealed to federal district court and ultimately to the courts of appeals.

Litigation history

DSH calculation has been heavily litigated.

Allina Health Services v Sebelius (Allina I, D.C. Cir. 2014)

746 F.3d 1102. The D.C. Circuit held that CMS could not include Medicare Advantage (Part C) days in the Medicare SSI fraction without proper rulemaking. The case turned on statutory interpretation of "entitled to benefits under Part A."

Medicare Advantage enrolls patients in plans that operate under Section 1862. Whether MA days count as "entitled to Part A" days for SSI fraction purposes has substantial financial implications for hospitals.

Allina Health Services v Price (Allina II, D.C. Cir. 2017)

863 F.3d 937. Further litigation after CMS rulemaking. The court invalidated CMS's interpretation, finding rulemaking procedural defects.

Subsequent CMS rulemaking and litigation

CMS issued additional rulemaking. Litigation continued on related questions. The state of law on MA days in the SSI fraction has been variable depending on cost reporting year and specific facts.

Empire Health Foundation v Becerra (Supreme Court, June 2022)

142 S. Ct. 2354. The Supreme Court ruled on whether "entitled to benefits under Part A" includes patients who are eligible for Medicare but for whom Medicare was not the actual primary payer for the specific stay.

The Court held (in a 5-4 decision) that the phrase includes Medicare-eligible patients regardless of whether Medicare actually paid. The ruling generally aligned with CMS's interpretation and was a setback for hospitals that had argued for a narrower interpretation that would have boosted their SSI fractions.

Section 1115 demonstration days

Continuing litigation addresses whether days for individuals covered under Section 1115 demonstrations who would not have been Medicaid-eligible absent the demonstration count toward the Medicaid fraction. CMS has generally taken a restrictive position.

Worksheet S-10 audit issues

Various aspects of Worksheet S-10 calculation have been challenged. Hospitals seek favorable interpretations that maximize their UCP share. CMS audits aim for accurate reporting.

DSH stacking with other payments

Medicare DSH stacks with several other payment streams for teaching and safety-net hospitals:

Base IPPS payment

DSH is an adjustment to the base IPPS payment, not a separate payment.

IME adjustment

For teaching hospitals, IME is a separate adjustment applied to the same base IPPS payment. IME and DSH both increase payment per admission.

Uncompensated Care Pool

Post-ACA, the UCP is paid in addition to the empirical (25%) DSH adjustment.

340B drug acquisition

DSH-qualifying hospitals (those with DSH adjustment percentage above 11.75%) qualify for 340B drug acquisition discounts.

Medicaid DSH

State-administered Medicaid DSH provides additional payments to qualifying hospitals.

Uncompensated care payments under Section 1115 waivers

Some states (not Georgia in recent years) operate Section 1115 waivers with uncompensated care pools.

Combined effect for Grady

For Grady Memorial Hospital, the combined federal financial support includes:

• Medicare base IPPS payments
• Medicare IME (substantial - high teaching intensity)
• Medicare DSH (substantial - very high DPP)
• Medicare UCP (substantial - high uncompensated care)
• Medicare DGME (substantial - high resident count)
• 340B drug acquisition savings (substantial)
• State Medicaid base payment
• State Medicaid DSH
• Georgia Indigent Care Trust Fund
• Combined: hundreds of millions of dollars in federal and state financial support annually

Without this stack, Grady's safety-net operations would not be financially viable.

State Medicaid DSH (Section 1923)

Parallel to Medicare DSH, Section 1923 of the Social Security Act authorizes state Medicaid DSH programs. Each state receives an annual federal Medicaid DSH allotment that the state distributes to qualifying hospitals.

Federal allotment

The federal Medicaid DSH allotment was originally set in 1992 with state-specific amounts. Aggregate national allotment has been adjusted multiple times:

• DRA 2005 (Deficit Reduction Act)
• ACA 2010 (initially scheduled DSH reductions)
• Multiple subsequent acts delaying ACA-scheduled reductions

ACA scheduled reductions

The ACA included scheduled reductions to state Medicaid DSH allotments based on coverage expansion. Congress has repeatedly delayed these reductions. As of 2026, the reductions remain at various stages of delay/implementation.

Georgia Medicaid DSH allotment

Georgia receives an annual federal Medicaid DSH allotment from CMS. The state matches with state funds and distributes to qualifying hospitals.

Georgia distribution methodology

The Georgia Department of Community Health distributes Medicaid DSH using methodology that considers:

• Medicaid utilization
• Low-income utilization rate
• Uncompensated care costs
• Hospital category (public, private nonprofit, for-profit)

Hospital-specific limit

Section 1923(g) limits state Medicaid DSH payments to a hospital to the hospital's actual uncompensated care costs plus Medicaid shortfall. This is the "hospital-specific DSH limit."

Federal matching

Georgia receives federal matching at the state's FMAP (approximately 64-65% in recent years). Each $100 of state Medicaid DSH receives approximately $180 in federal matching, total $280 of combined funding.

Georgia Indigent Care Trust Fund

The ICTF is the state-level mechanism for funding indigent care payments. The fund draws from various sources including hospital provider fees and general state appropriations.

Major Georgia DSH hospitals

Grady Memorial Hospital (Atlanta)

• Highest DSH in Georgia
• Public safety-net hospital
• DPP typically above 50%
• Joint Emory/Morehouse teaching affiliation
• Substantial Medicare DSH plus UCP
• Substantial state Medicaid DSH
• Combined federal/state financial support critical to operations

Memorial Health Savannah

• HCA Healthcare affiliated
• Coastal Georgia regional safety-net role
• Substantial Medicaid and uninsured patient share
• Medicare DSH and UCP recipient

Phoebe Putney Memorial Hospital (Albany)

• Largest hospital in southwest Georgia
• Regional safety-net role
• Substantial Medicaid and uninsured share
• Medicare DSH and UCP recipient

AU Medical Center (Augusta)

• Augusta University academic medical center
• Substantial Medicaid patient share
• Combined IME, DGME, and DSH

Atrium Health Floyd (Rome)

• Northwest Georgia regional hospital
• Medicare DSH recipient

Northeast Georgia Medical Center (Gainesville)

• Northeast Georgia regional hospital
• Medicare DSH recipient

Wellstar hospitals

• Wellstar Cobb (Austell): DSH hospital
• Wellstar Kennestone (Marietta): Larger Wellstar DSH
• Wellstar Atlanta Medical Center: Was a DSH hospital; closed in 2022

Piedmont Atlanta

• Variable DSH status year to year

Emory hospitals

• Emory University Hospital: Variable DSH status
• Emory University Hospital Midtown: Variable DSH status

Rural Georgia DSH hospitals

Many rural Georgia hospitals qualify for DSH. Combined with CAH, SCH, or RRC provisions, the DSH framework supports rural hospital viability where possible.

Closed hospitals

Wellstar Atlanta Medical Center closure in 2022 removed a major DSH hospital from downtown Atlanta. The closure has had substantial access implications.

Rural Georgia DSH detail

Rural Georgia includes counties in southwest Georgia, south Georgia, southeast Georgia, north Georgia mountains, and the middle Georgia agricultural belt. Rural Georgia hospitals that participate in Medicare DSH (combined where applicable with Sole Community Hospital, Medicare-Dependent Hospital, Critical Access Hospital, or Rural Emergency Hospital designations) include facilities in Albany, Tifton, Valdosta, Dublin, Vidalia, Brunswick, Waycross, Bainbridge, Cordele, Americus, Cuthbert, Statesboro, Sandersville, Milledgeville, Dahlonega, Toccoa, LaGrange, and many other communities. Each of these communities depends on a few hospitals serving a substantial proportion of low-income, Medicaid, and uninsured patients.

The financial fragility of rural Georgia hospitals is well-documented. Multiple rural Georgia hospitals have closed in the past decade. Hospital closures in rural Georgia have included facilities in Cuthbert (Southwest Georgia Regional), Hawkinsville (Taylor Regional), Folkston (Charlton Memorial), Hancock County (Hancock Memorial), and others. For each closure, DSH support that previously kept the facility marginally viable was insufficient to overcome other financial pressures including Medicaid expansion non-adoption, declining inpatient volume, rural workforce shortages, and capital expenditure burdens.

Hospitals at the DPP eligibility margin

A category of Georgia hospitals operates at or just above the 15 percent DPP threshold. For these hospitals, DSH eligibility can flip year-to-year based on small changes in:

• Medicaid eligibility rolls in their service area
• SSI eligibility distribution
• Hospital admission patterns
• Cost reporting decisions

These threshold-margin hospitals invest heavily in accurate Medicaid day reporting because a $0 vs $1-5 million DSH outcome turns on small data differences.

Georgia hospitals across DPP bands

Above 50 percent DPP (very high disproportionate share): Grady Memorial Hospital. Hospital-specific support is critical.

30-50 percent DPP (substantial disproportionate share): Phoebe Putney Memorial, AU Medical Center, Memorial Health Savannah (some years), Atrium Health Floyd (some years), Northeast Georgia Medical Center (some years).

15-30 percent DPP (qualifying for DSH): many Georgia community hospitals, Wellstar facilities, Piedmont facilities, Emory facilities, Mercer/Navicent facilities.

Below 15 percent DPP (no DSH): smaller community hospitals serving predominantly insured populations.

Worked example 1: Grady Memorial Hospital DSH

Grady serves an extremely high proportion of Medicaid, uninsured, and SSI-eligible Medicare patients.

DPP calculation (illustrative):

• SSI fraction: ~30%
• Medicaid fraction: ~30%
• Total DPP: ~60%

DSH adjustment percentage: Using the urban hospital formula for DPP at 60%:

• 5.88% + 82.5% × (60% - 20.2%) = 5.88% + 32.8% = 38.7%

(Subject to statutory caps and ACA restructuring.)

Pre-ACA framework: A 38.7% DSH adjustment on base IPPS payments of ~$150 million would produce ~$58 million in DSH.

Post-ACA framework (25/75):

• Empirical DSH (25%): ~$14.5 million
• UCP allocation (75% pool share based on Worksheet S-10): substantial, likely $30-50+ million depending on year

Total: $50-80+ million annually in DSH-related payments (illustrative)

Worked example 2: Phoebe Putney rural Georgia DSH

Phoebe Putney serves southwest Georgia with substantial low-income patient population.

DPP: Estimated 30-40% (varies year to year).

DSH adjustment: Using the urban hospital formula at DPP 35%:

• 5.88% + 82.5% × (35% - 20.2%) = 5.88% + 12.2% = 18.1%

Pre-ACA: 18.1% × $80 million base IPPS = ~$14.5 million

Post-ACA (25/75):

• Empirical DSH: ~$3.6 million
• UCP allocation: variable

Total: $8-15 million annually in DSH-related payments

Worked example 3: AU Medical Center academic DSH

AU Medical Center is the Augusta University academic medical center.

DPP: Estimated 25-30%

Stacking with IME: AU Medical Center receives substantial IME (high resident-to-bed ratio). Combined IME + DSH adjustments substantially increase per-admission Medicare payments.

Combined Medicare adjustments: IME (18%) + DSH (15%) = ~33% adjustment on top of base IPPS, plus UCP allocation. Combined: $30-50+ million annually.

Worked example 4: Memorial Health Savannah HCA DSH

Memorial Health Savannah is owned by HCA Healthcare. Despite for-profit ownership, the hospital qualifies as a DSH hospital based on its low-income patient share.

DPP: Estimated 20-25%

DSH adjustment: Modest but material. Combined with substantial Medicare volume in Savannah region, DSH adds meaningful revenue.

Worked example 5: Section 3133 ACA restructuring impact

A Georgia DSH hospital with pre-ACA DSH of $20 million annually:

Pre-ACA framework: $20 million empirical DSH

Post-ACA framework:

• Empirical DSH (25%): $5 million
• UCP allocation (75% pool share): variable
  • If the hospital has high reported uncompensated care: $12-18 million
  • If the hospital has moderate reported uncompensated care: $5-10 million
  • If the hospital has low reported uncompensated care: $2-5 million

The 25/75 restructuring shifted financial advantage toward hospitals with high reported uncompensated care. Hospitals with substantial Medicaid revenue but lower uncompensated care experienced relative reductions.

Worked example 6: Empire Health Foundation v Becerra

A hypothetical Georgia hospital with:

• Total Medicare days: 30,000
• Medicare days for patients also eligible for SSI: 5,000 (some of these days had Medicare as the actual primary payer, some did not)

Pre-Empire Health interpretation (hospital position): Only count days where Medicare was the actual primary payer for SSI fraction calculation.

Post-Empire Health Supreme Court ruling: Count all days where the patient was Medicare-eligible AND SSI-eligible, regardless of who actually paid.

The Empire Health interpretation generally results in:

• Larger SSI fraction denominators (more days counted as "Medicare entitled")
• Potentially smaller SSI fractions (if numerator does not grow proportionally)
• For some hospitals, lower DSH adjustment

The ruling affected DSH amounts at hospitals nationwide. Implementation has been complex.

Worked example 7: Georgia Medicaid DSH allocation

The Georgia Department of Community Health distributes the state's federal Medicaid DSH allotment using a methodology that prioritizes hospitals with high Medicaid utilization and uncompensated care. A representative allocation might look as follows:

Hospital A (urban academic safety-net): substantial Medicaid utilization, very high uncompensated care, public ownership. Receives major Medicaid DSH allocation in millions of dollars.

Hospital B (rural safety-net): high Medicaid utilization relative to its size, substantial uncompensated care, nonprofit ownership. Receives proportionally significant Medicaid DSH despite smaller absolute amount.

Hospital C (community hospital, moderate Medicaid): moderate Medicaid utilization, moderate uncompensated care, for-profit ownership. Receives smaller Medicaid DSH allocation.

Hospital D (specialty hospital, low Medicaid): low Medicaid utilization, low uncompensated care. Does not qualify for Medicaid DSH or receives nominal allocation only.

The hospital-specific limit under Section 1923(g) caps each hospital's combined Medicaid DSH payments at its uncompensated care costs plus Medicaid shortfall. Hospitals that bump against this limit cannot receive additional Medicaid DSH even when state allocation methodology would otherwise direct it. Georgia DCH has methodology, regularly updated, that handles this constraint.

Worked example 8: Rural Georgia DSH stacking with SCH/MDH/CAH

Imagine a 50-bed rural Georgia hospital in southwest Georgia. The hospital qualifies as both Sole Community Hospital under 42 CFR 412.92 and DSH under Section 1886(d)(5)(F). Annual financial picture:

Base Medicare IPPS payments: approximately $25 million for Medicare inpatient admissions SCH adjustment: hospital-specific rate calculations under 42 CFR 412.92, often providing ~10-20% boost over standard IPPS rates DSH adjustment: DPP of approximately 25%, yielding DSH adjustment percentage of approximately 10-12%, providing $2.5-3.0 million additional UCP allocation: based on Worksheet S-10 reported uncompensated care, approximately $1-2 million annually State Medicaid DSH: from ICTF allocation, approximately $500K-1.5M Section 340B drug acquisition savings: estimated $1-3 million annually

Combined federal/state support for this rural hospital totals $5-10+ million beyond base IPPS payments. Even with this support, many rural Georgia hospitals operate near or below break-even. The financial fragility is the central policy issue that has driven multiple rural Georgia hospital closures.

Worked example 9: Dual eligible classification in DSH

A common DSH calculation question involves dual eligible patients (patients eligible for both Medicare and Medicaid).

Question: For a hospital admission of a dual eligible patient, does this day count toward the Medicare denominator (Medicare entitled days), the Medicaid numerator (Medicaid days), or both?

Answer (under current rules and Empire Health interpretation):

• The patient day counts toward "total patient days for patients entitled to Medicare Part A" (the SSI fraction denominator)
• The patient day does NOT count toward the Medicaid fraction (the Medicaid fraction excludes Medicare-entitled patients)
• If the patient is also SSI-eligible, the patient day counts toward the SSI fraction numerator

This treatment means dual eligible patients are captured in the SSI fraction (if also SSI-eligible) but not the Medicaid fraction. For Georgia hospitals serving substantial dual eligible populations (Grady, Memorial Savannah, Phoebe Putney), the SSI fraction is correspondingly substantial.

DSH operations workflow for Georgia hospital finance teams

For Georgia hospital finance, reimbursement, and compliance teams responsible for DSH calculation and reporting, a typical annual workflow operates as follows:

Quarter 1 (cost report preparation): Review prior fiscal year claims data. Identify Medicare days, Medicaid days, SSI-eligible days. Reconcile against state Medicaid eligibility data. Begin charity care identification.

Quarter 2 (Worksheet S-10 development): Identify charity care, uninsured discounts, bad debt, Medicaid shortfall components. Apply cost-to-charge ratio. Reconcile with hospital general ledger. Identify potential audit-defense issues.

Quarter 3 (cost report filing): Submit Medicare cost report Form CMS-2552 to MAC (Palmetto GBA for Georgia). Submit Worksheet S-10 with appropriate supporting documentation.

Quarter 4 (MAC review): Respond to MAC inquiries. Provide additional documentation as requested. Negotiate any tentative adjustments.

Throughout year: Track DSH and UCP payments received on claims. Reconcile against estimated DSH. Identify discrepancies. Maintain documentation supporting all components of DSH calculation.

Audit response: When MAC audits Worksheet S-10 or other DSH components, hospital must defend its calculations with documentation. Audit defense can extend over months to years. Adverse audit findings can be appealed to PRRB and federal court.

Settlement and reopening: Cost reports settle 12-24+ months after filing. Reopening can extend the settlement period further. DSH amounts are subject to adjustment throughout the settlement process.

Common DSH compliance and calculation issues

Error 1: Medicaid eligible days documentation gaps The Medicaid fraction requires identification of all Medicaid-eligible patient days. Documentation gaps can result in under-counted days and reduced DSH.

Error 2: SSI fraction calculation disputes CMS calculates SSI fractions using MEDPAR data matched against SSA records. Disputes can arise about specific patient-day classifications.

Error 3: Section 1115 demonstration days States operating Section 1115 demonstrations may have populations covered under the demonstration who are not technically Medicaid-eligible. Inclusion or exclusion in DSH calculation is the subject of ongoing dispute.

Error 4: Medicare Advantage day classification Whether MA days count for SSI fraction has been heavily litigated. Current state of law depends on cost reporting year and specific facts.

Error 5: Dual eligible classification Patients eligible for both Medicare and Medicaid (dual eligibles) require specific classification. They count toward Medicare entitled days for SSI fraction purposes.

Error 6: Worksheet S-10 reporting accuracy Uncompensated care reporting on Worksheet S-10 is complex. Errors can affect UCP allocation.

Error 7: Charity care vs bad debt distinction Worksheet S-10 distinguishes charity care from bad debt with different adjustments. Misclassification affects UCP amount.

Error 8: Medicaid shortfall calculation Worksheet S-10 reporting of Medicaid shortfall requires careful calculation of Medicaid costs vs Medicaid revenue.

Error 9: DPP threshold near 15% Hospitals near the 15% threshold can face all-or-nothing DSH eligibility. Accurate day counting is critical.

Error 10: Cost report deadline issues Medicare cost reports have strict deadlines. Late filing or amended filing can affect DSH.

Error 11: Audit and reopening DSH amounts are subject to MAC audit and potential reopening. Hospitals must defend their calculations.

Error 12: State Medicaid DSH coordination State Medicaid DSH has hospital-specific limits. Coordination with Medicare DSH and ICTF requires care.

Error 13: Rural and small hospital provisions Various special provisions apply to rural and small hospitals. Misapplication can result in incorrect DSH.

Error 14: ACA restructuring transition compliance The phased implementation of ACA DSH restructuring has had transition complexities.

DSH alternatives and supplementary state programs

Beyond Medicare DSH and state Medicaid DSH, several other federal and state programs provide financial support to hospitals serving low-income populations. Georgia hospitals navigate this landscape carefully because eligibility for one program often affects eligibility for or magnitude of another.

Section 1115 uncompensated care pools

Some states (Texas, California, New York, Florida historically) have negotiated Section 1115 demonstration waivers that include uncompensated care pools (UC Pools) funded through federal Medicaid matching. These pools provide substantial supplemental payments to safety-net hospitals beyond what Medicare DSH and Medicaid DSH alone provide. Georgia has not pursued a Section 1115 UC Pool in recent years, although Georgia could theoretically negotiate one with CMS.

Disproportionate Share Hospital Provider Relief Funds

Various federal acts have authorized additional safety-net hospital support during public health emergencies (COVID-19 Provider Relief Fund) and through specific provisions for distressed hospitals. Some Georgia hospitals received PRF distributions during 2020-2022.

Critical Access Hospital cost-based reimbursement

Critical Access Hospitals (≤25 beds, rural) receive cost-based reimbursement under 42 CFR 413 rather than IPPS payment. CAH reimbursement is generally more favorable than IPPS-based DSH for small rural hospitals. Multiple rural Georgia hospitals operate as CAHs.

Sole Community Hospital, Medicare-Dependent Hospital, Rural Emergency Hospital

Various special hospital designations provide alternative or supplementary payment mechanisms for rural and isolated hospitals. Georgia rural hospitals participate in these designations as appropriate.

Rural Health Clinic and Federally Qualified Health Center payments

For outpatient services, Rural Health Clinics (RHCs) under Section 1861(aa) and Federally Qualified Health Centers (FQHCs) under Section 1861(aa)(4) receive cost-based payments. While not directly DSH-related, these mechanisms support rural and underserved care similar to how DSH supports inpatient safety-net services.

Provider tax mechanisms

States use provider tax/assessment mechanisms to generate non-federal share of state Medicaid spending including Medicaid DSH. Georgia operates a hospital provider fee that contributes to the state share of Medicaid financing. The provider fee in turn relates to financing of ICTF and Medicaid base payments.

Tobacco Settlement and other state mechanisms

Various state-specific mechanisms provide additional support to safety-net hospitals. The Georgia Tobacco Settlement Funds and other state appropriations have historically contributed to ICTF financing.

DSH and Medicare beneficiaries: the access connection

Most discussion of DSH focuses on the hospital financial perspective. But DSH ultimately serves Medicare beneficiaries because financial support to safety-net hospitals translates into preserved access. The mechanism works as follows:

Access to specialty services

Safety-net hospitals often house specialty services (trauma, burn, transplant, complex cardiology, neurology, behavioral health) that may not be financially viable at other community hospitals. DSH support helps these specialty services remain available. Medicare beneficiaries who need these specialty services in Atlanta, Augusta, Savannah, Albany, Macon, and other Georgia metro areas often rely on DSH-supported hospitals.

Access during emergencies

Safety-net hospital emergency departments serve as critical infrastructure during regional emergencies, mass casualty events, and surge demand. DSH support helps maintain emergency department capacity. Medicare beneficiaries who arrive at hospital emergency departments by ambulance often arrive at DSH hospitals (Grady is Atlanta's primary trauma center).

Access in safety-net neighborhoods

Hospitals located in lower-income neighborhoods often qualify for substantial DSH because they serve disproportionately low-income populations. The hospital provides Medicare beneficiaries who live in those neighborhoods (including low-income elderly, dual eligibles, SSI recipients) with proximate access to inpatient care. Loss of these hospitals would force longer travel for inpatient services.

Access during transitions of care

Medicare beneficiaries often transition between hospital, skilled nursing facility, home health, hospice, and other care settings. The hospital component of this chain is often a DSH-supported facility for beneficiaries in safety-net populations. DSH preservation helps preserve continuity of care.

Dual eligibles and Medicare-Medicaid coordination

Approximately 12 million Americans are dual eligible (enrolled in both Medicare and Medicaid). Dual eligibles often have multiple chronic conditions and high hospital utilization. Many dual eligibles receive care at DSH hospitals because these hospitals serve disproportionate share of low-income populations including dual eligibles. The Medicare DSH framework supports the inpatient component of dual eligible care.

How DSH affects access to care for Georgia beneficiaries

The financial support that DSH provides to Georgia safety-net hospitals translates into access to care for Medicare beneficiaries, Medicaid beneficiaries, and uninsured patients. Without DSH and related federal/state payments, several major Georgia hospitals would face severe financial pressure that could result in:

Service reductions

Hospitals could close specialty services that are financially unsustainable without DSH support. Maternity services, behavioral health, oncology, and other specialty service lines are particularly at risk in underfunded hospitals.

Hospital closures

The most severe consequence is hospital closure. The 2022 Wellstar Atlanta Medical Center closure removed a major DSH hospital from downtown Atlanta with substantial access implications. Future closures of other Georgia DSH hospitals would have similar effects.

Emergency department access

Hospital emergency departments serve as the safety net of the safety net. DSH support helps maintain emergency department staffing, equipment, and operations. Without DSH, EDs could face reduced staffing or even closure.

Charity care availability

DSH support enables hospitals to provide charity care to uninsured patients. Without DSH, charity care policies could become more restrictive, leaving more uninsured patients without access.

Geographic access

For rural Georgia, hospital closure can mean patients drive an hour or more for inpatient care. DSH support is critical to maintaining rural inpatient access.

Implications for Medicare beneficiaries

Many Medicare beneficiaries (especially dual eligibles, SSI recipients, and beneficiaries in low-income areas) receive care at DSH hospitals. The financial viability of these hospitals directly affects beneficiary access. Specifically:

• Medicare beneficiaries in metro Atlanta who use Grady for various services
• Medicare beneficiaries in southwest Georgia who use Phoebe Putney
• Medicare beneficiaries in Augusta who use AU Medical Center
• Medicare beneficiaries in coastal Georgia who use Memorial Savannah
• Rural Georgia Medicare beneficiaries whose local hospitals are DSH-supported

Recent CMS DSH and UCP rulemaking

CMS issues annual IPPS final rules that include DSH and UCP updates. Recent significant items:

CY 2024 IPPS Final Rule

• Continued UCP distribution using Worksheet S-10 with refinements
• DSH amount calculations consistent with prior framework
• Various technical updates

CY 2025 IPPS Final Rule

• Continued refinement of Worksheet S-10 methodology
• Adjustments to Factor 2 (uninsured rate adjustment)

CY 2026 IPPS Proposed and Final Rules

• Continued evolution. As of publication date, ongoing rulemaking refines methodology.

MedPAC recommendations

MedPAC has recommended:

• More precise targeting of DSH to safety-net mission
• Improvements to Worksheet S-10 audit and verification
• Periodic revisitation of DSH adjustment formula

CMS has implemented some MedPAC recommendations and rejected others. Comprehensive DSH reform has not been enacted.

State Medicaid expansion and DSH

The ACA's Medicaid expansion was designed to reduce uncompensated care by extending Medicaid coverage to adults under 138% of the federal poverty level.

Expansion states

Most states have adopted Medicaid expansion. Expansion states experienced:

• Substantial increases in Medicaid enrollment
• Substantial decreases in uninsured rates
• Higher Medicaid fractions for DSH calculations (more days Medicaid-eligible)
• Reduced uncompensated care (more former uninsured patients now Medicaid-covered)

Non-expansion states (including Georgia)

Georgia has not adopted Medicaid expansion. Consequences:

• Lower Medicaid enrollment than expansion peers
• Higher uninsured rates
• Lower Medicaid fractions for DSH (fewer days Medicaid-eligible)
• Higher reported uncompensated care (more uninsured patients)

Net DSH effect

The net effect on Georgia DSH amounts is mixed:

• Georgia hospitals have higher uncompensated care, supporting higher UCP allocations
• But lower Medicaid fractions reduce empirical DSH
• Combined effects vary by hospital

DSH financing context and policy debates

Total federal Medicare DSH spending

National Medicare DSH and UCP spending is in the range of $14-18 billion annually depending on cost report year and methodology. The split between empirical DSH and UCP allocation has stabilized at approximately the 25/75 framework with adjustments through Factor 2 based on uninsured rate trends. Georgia hospitals collectively receive a substantial portion of this national pool, reflecting Georgia's combination of substantial Medicaid populations, substantial uninsured populations (driven in part by Medicaid expansion non-adoption), and a large hospital industry serving these populations.

Total state Medicaid DSH

National Medicaid DSH allotments to states total approximately $13 billion annually with ACA-scheduled reductions delayed multiple times. Combined with state match at FMAP, total Medicaid DSH spending across all states is approximately $25-30 billion annually. Georgia's share reflects state allotment from federal formula and state matching.

Policy debates

DSH has been the subject of substantial policy debate over the years:

Targeting: Critics argue that DSH is poorly targeted because the DPP formula relies on imperfect proxies (SSI eligibility, Medicaid eligibility) that may not align with actual uncompensated care or financial distress. MedPAC has periodically recommended better targeting. Defenders argue that the formula has worked reasonably well and that disrupting it would harm hospitals that have built financial structures around DSH receipts.

ACA restructuring impact: The Section 3133 restructuring was supposed to align DSH more closely with actual uncompensated care via Worksheet S-10. Whether it has achieved this goal is contested. Some hospitals report that the Worksheet S-10 methodology produces unreliable measures of uncompensated care because of variations in hospital charity care policies, cost-to-charge ratios, and other factors.

Medicaid expansion: In states that did not adopt Medicaid expansion (including Georgia), uncompensated care is higher than in expansion states. The current DSH framework distributes more UCP funding to non-expansion states. Some have argued this is appropriate (compensating for the coverage gap). Others have argued this is inappropriate (effectively subsidizing non-expansion).

Section 1115 demonstration days: The treatment of Section 1115 demonstration days in the Medicaid fraction continues to be litigated. Some states with expansive demonstrations argue they should count fully; CMS has taken a more restrictive position.

MA day classification: The treatment of Medicare Advantage days in the SSI fraction was contested through Allina litigation. The current rules are stabilizing but disputes continue on margin-of-error questions.

Future of DSH

DSH framework is unlikely to undergo major change in the immediate term but pressure for reform exists:

• Concern about ACA-scheduled Medicaid DSH reductions (repeatedly delayed)
• Concern about the cost-to-charge ratio methodology in Worksheet S-10
• Concern about Section 1115 demonstration day treatment
• Concern about rural hospital financial fragility despite DSH support
• Concern about whether DSH continues to address contemporary hospital financial pressures

CMS and Congress will likely continue making incremental adjustments. Major statutory restructuring is not on the near-term legislative agenda but could emerge during broader healthcare reform efforts.

Brevy perspective on Georgia DSH

At Brevy we monitor Georgia hospital financing closely because hospital financial health directly affects Medicare and Medicaid beneficiary access to care. Our analysis suggests that Georgia DSH framework currently functions but with significant strain:

• Grady and Phoebe Putney remain well-supported by combined DSH/UCP/IME/340B financing but operate at thin margins
• Memorial Savannah, AU Medical, and several other Georgia DSH hospitals depend substantially on DSH for operating viability
• Rural Georgia DSH hospitals operate with the thinnest margins; multiple closures have occurred and others remain vulnerable
• Georgia's Medicaid expansion non-adoption creates a mixed effect on Georgia hospitals (higher UCP allocations from higher uncompensated care, but lower Medicaid fractions)
• Wellstar Atlanta Medical Center closure in 2022 demonstrated that even seemingly stable safety-net hospitals can close, with substantial access consequences

Medicare beneficiaries in Georgia rely on these hospitals for both routine and complex care. The financial health of Georgia safety-net hospitals is therefore a Medicare access issue, not just a hospital finance issue.

Working with Brevy and Georgia resources

Brevy publishes regularly updated guides at brevy.com on Medicare hospital payment, Medicaid, safety-net financing, and related topics. We do not provide legal, financial, or compliance advice. We provide research-grade content explaining the framework so that Georgia hospitals, administrators, advocates, and beneficiaries can understand the program.

For provider DSH questions, contact Palmetto GBA at 1-866-238-9650 or your hospital's reimbursement department. For state Medicaid DSH questions, contact Georgia DCH at 1-866-211-0950. For Medicare beneficiary questions about hospital coverage, contact Medicare at 1-800-MEDICARE or GeorgiaCares SHIP at 1-866-552-4464.

Disclaimers

This article is for educational purposes only and does not constitute legal, financial, compliance, or medical advice. DSH rules are subject to change through CMS rulemaking, congressional action, and ongoing litigation. The information in this article reflects rules in effect as of May 2026. Always verify current rules at cms.gov, palmettogba.com, and through current CMS Provider Reimbursement Manual provisions before making decisions.

Brevy is not affiliated with CMS, HRSA, HHS, Palmetto GBA, MedPAC, or any hospital. Brevy is an eldercare research and information company. We accept no compensation from healthcare providers, hospitals, insurance carriers, or other parties.

Information about Georgia hospitals reflects publicly available information as of the publication date. Specific DSH payment estimates are illustrative; actual amounts vary by year and depend on specific calculation factors. Verify current information with the relevant organization before relying on it.

This article was researched and written by the Brevy Care Team and is pending final editorial review.

Learn More

• Georgia Medicare Uncompensated Care (UCC) Pool
• Georgia Medicaid Disproportionate Share Hospital (DSH) Program
• Georgia Medicare Cost Report
• Georgia Medicare Bad Debt Reimbursement
• Georgia Medicaid Rural Hospital Network
• Georgia Medicare Hospital Inpatient Benefit

Find personalized help understanding how Georgia's safety-net hospitals are funded at brevy.com.

The information on Brevy.com is for educational purposes only and is not a substitute for professional legal, financial, or medical advice. Rules vary by state and program and change frequently. Always verify with the relevant agency or a qualified professional. Brevy is not a law firm, financial advisor, or healthcare provider.