State Accountability, Flexibility, and Equity for Hospitals Act of 2021 or the SAFE Hospitals Act of 2021
This bill alters Medicaid requirements relating to payment for inpatient hospital services that are provided by disproportionate share hospitals (DSHs). (DSHs are hospitals that receive additional payment under Medicaid for treating a large share of low-income patients.)
Among other changes, the bill requires state Medicaid programs to adopt a payment methodology that meets certain criteria, including by prioritizing payments based on the DSH tier for which the hospital qualifies; tiers are determined based on factors such as the hospital's Medicaid inpatient utilization rate.
The bill also incorporates state poverty ratios (i.e., the number of qualifying low-income individuals in a state compared to all states) into the formula for determining state DSH allotments under Medicaid. The bill phases in application of the revised formula over the course of 10 to 15 years.
To amend title XIX of the Social Security Act to establish a 
       methodology for determining State allotments for Medicaid 
disproportionate share hospital payments that is based on State poverty 
levels, to require States to prioritize disproportionate share hospital 
payments on the basis of Medicaid inpatient utilization and low-income 
               utilization rates, and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``State Accountability, Flexibility, 
and Equity for Hospitals Act of 2021'' or the ``SAFE Hospitals Act of 
2021''.

SEC. 2. DETERMINATION OF STATE DSH ALLOTMENTS BASED ON STATE POVERTY 
              LEVELS.

    Section 1923(f) of the Social Security Act (42 U.S.C. 1396r-4(f)) 
is amended--
            (1) in paragraph (3)--
                    (A) in the paragraph heading, by striking ``year 
                2003 and thereafter'' and inserting ``years 2003 
                through 2023'';
                    (B) in subparagraph (A)--
                            (i) by striking ``, (7), and (8)'' and 
                        inserting ``and (7)''; and
                            (ii) by inserting ``through fiscal year 
                        2023'' after ``each succeeding fiscal year'';
                    (C) in subparagraph (C)(ii), by inserting ``through 
                fiscal year 2023'' after ``each succeeding fiscal 
                year''; and
                    (D) in subparagraph (E)(i)(III), by inserting ``or 
                paragraph (7), as applicable,'' after ``this 
                paragraph'';
            (2) in paragraph (4)(C), by inserting ``or paragraph (7), 
        as applicable,'' after ``paragraph (3)'';
            (3) in paragraph (5)(B)--
                    (A) in the subparagraph heading, by striking ``and 
                subsequent fiscal years'' and inserting ``through 
                fiscal year 2023''; and
                    (B) in clause (iii), by inserting ``through fiscal 
                year 2023'' after ``any subsequent fiscal year'';
            (4) in paragraph (6)--
                    (A) in clause (vi) of subparagraph (A)--
                            (i) in the clause heading, by striking 
                        ``2025'' and inserting ``2023''; and
                            (ii) by striking ``fiscal year 2025'' and 
                        inserting ``fiscal year 2023''; and
                    (B) in clause (iii) of subparagraph (B)--
                            (i) in the clause heading, by inserting 
                        ``through fiscal year 2023'' after ``succeeding 
                        fiscal years''; and
                            (ii) in subclause (II)--
                                    (I) in the subclause heading, by 
                                inserting ``through fiscal year 2023'' 
                                after ``succeeding fiscal years''; and
                                    (II) by inserting ``through fiscal 
                                year 2023'' after ``each fiscal year 
                                thereafter'';
            (5) by striking paragraphs (7) and (8) and inserting the 
        following:
            ``(7) State dsh allotments for fiscal years after fiscal 
        year 2023.--
                    ``(A) In general.--Subject to subparagraphs (B), 
                (C), and (D), beginning with fiscal year 2024, the DSH 
                allotment for a State and fiscal year shall be the 
                amount equal to the product of--
                            ``(i) the State poverty ratio (as 
                        determined under subparagraph (E)(ii)) for the 
                        State and fiscal year; and
                            ``(ii) the DSH allotment cap (as determined 
                        under subparagraph (E)(i)) for the fiscal year.
                    ``(B) Phase-in of poverty-based formula.--
                            ``(i) In general.--During the period of 
                        fiscal years described in clause (ii), the 
                        Secretary shall phase in the application of the 
                        determination of DSH allotments under 
                        subparagraph (A) in a manner that ensures 
                        that--
                                    ``(I) in no case is the DSH 
                                allotment for a State for a fiscal year 
                                during such period less than 90 percent 
                                of the DSH allotment for the State for 
                                the previous fiscal year (without 
                                regard to whether the State used the 
                                full amount of the DSH allotment for 
                                the previous fiscal year); and
                                    ``(II) the total amount of DSH 
                                allotments made to all States for any 
                                fiscal year during such period does not 
                                exceed the DSH allotment cap determined 
                                for the fiscal year under subparagraph 
                                (E)(i).
                            ``(ii) Phase-in period.--The period of 
                        fiscal years described in this clause is the 
                        period that begins with fiscal year 2024 and 
                        ends with--
                                    ``(I) fiscal year 2033; or
                                    ``(II) at the Secretary's 
                                discretion, any of fiscal years 2034 
                                through 2038.
                            ``(iii) Development of methodology.--The 
                        Secretary shall promulgate final regulations 
                        that establish the methodology for determining 
                        State DSH allotments under clause (i) not later 
                        than January 1, 2023.
                    ``(C) State allotment flexibility option.--
                            ``(i) In general.--A State may elect to 
                        increase or reduce the amount of the DSH 
                        allotment for the State and a fiscal year (as 
                        otherwise determined under this paragraph) for 
                        the purpose of providing certainty or more 
                        consistent DSH funding in subsequent fiscal 
                        years in accordance with this subparagraph.
                            ``(ii) State option to reserve allotment 
                        amounts.--For any fiscal year after fiscal year 
                        2023, a State may request that the DSH 
                        allotment for the State and fiscal year (as 
                        otherwise determined under this paragraph) be 
                        reduced by an amount that shall not exceed 10 
                        percent of the amount of the allotment as so 
                        determined.
                            ``(iii) State option to increase dsh 
                        allotment from allotment reserve.--For any 
                        fiscal year after fiscal year 2024, a State may 
                        request that the DSH allotment for the State 
                        and fiscal year (as otherwise determined under 
                        this paragraph) be increased by an amount that 
                        shall not exceed the DSH reserve amount for the 
                        State and fiscal year.
                            ``(iv) DSH reserve amount.--
                                    ``(I) In general.--Subject to 
                                subclause (II), the DSH reserve amount 
                                for a State and fiscal year shall be 
                                equal to the sum of the amounts, if 
                                any, of any reductions to the State's 
                                DSH allotment (as otherwise determined 
                                under this paragraph) made in each of 
                                the preceding 5 fiscal years pursuant 
                                to a request under clause (ii).
                                    ``(II) Subtraction of increases 
                                from dsh reserve amount.--The amount of 
                                any increase to a State's DSH allotment 
                                for a fiscal year made pursuant to a 
                                request under clause (iii) shall be 
                                subtracted from the State's DSH reserve 
                                amount for such year and shall not be 
                                available to the State in subsequent 
                                fiscal years.
                                    ``(III) Rule of application.--In 
                                the case of an increase to a State's 
                                DSH allotment for a fiscal year that is 
                                less than the State's DSH reserve 
                                amount for such year, the Secretary 
                                shall apply subclause (II) in a manner 
                                that maximizes the DSH reserve amount 
                                that will remain available to the State 
                                in subsequent fiscal years.
                            ``(v) Disregard of adjustments.--Any 
                        increase or reduction under this subparagraph 
                        to the DSH allotment of a State for a fiscal 
                        year shall be disregarded when otherwise 
                        determining State DSH allotments under this 
                        paragraph.
                    ``(D) Treatment of waivers.--
                            ``(i) In general.--Subject to clause (ii), 
                        with respect to a State and a fiscal year, if 
                        the State has in effect on the date of 
                        enactment of the SAFE Hospitals Act of 2021 a 
                        statewide waiver of requirements of this title 
                        under section 1115 or other law and any part of 
                        the fiscal year occurs during the period of the 
                        waiver (as approved as of such date), the DSH 
                        allotment determined under this paragraph for 
                        such State and fiscal year shall not be less 
                        than the DSH allotment that would have been 
                        determined for such State and fiscal year under 
                        this section as in effect on the day before the 
                        date of enactment of the SAFE Hospitals Act of 
                        2021, reduced, in the case of each of fiscal 
                        years 2024 through 2027, by the amount of the 
                        State's share of the reductions which would 
                        have been applicable for the fiscal year under 
                        paragraph (7) of this subsection (as so in 
                        effect), as estimated by the Secretary.
                            ``(ii) Total allotments not to exceed dsh 
                        allotment cap.--The Secretary shall apply this 
                        subparagraph in such a manner that the total 
                        amount of DSH allotments determined for all 
                        States for a fiscal year under this paragraph 
                        does not exceed DSH allotment cap determined 
                        for the fiscal year under subparagraph (E)(i).
                            ``(iii) Nonapplication.--Clause (i) shall 
                        not apply--
                                    ``(I) with respect to a State that 
                                has in effect a waiver described in 
                                such clause if the State elects, 
                                through a revision of such waiver, that 
                                such clause will not apply; or
                                    ``(II) with respect to any part of 
                                a fiscal year that occurs after the 
                                expiration (determined without regard 
                                to any extension approved after the 
                                date of the enactment of the State 
                                Accountability, Flexibility, and Equity 
                                for Hospitals Act of 2021) of such a 
                                waiver.
                            ``(iv) No effect on waiver authority.--
                        Nothing in this subsection shall be construed 
                        as preventing the Secretary from approving a 
                        waiver under section 1115 or other law with 
                        respect to requirements under this title 
                        related to a State's use of its DSH allotment 
                        for a fiscal year.
                    ``(E) Definitions.--In this paragraph:
                            ``(i) DSH allotment cap.--The term `DSH 
                        allotment cap' means, with respect to a fiscal 
                        year, the amount equal to the total amount of 
                        the DSH allotments that would have been 
                        determined for all States for the fiscal year 
                        under this section as in effect on the day 
                        before the date of enactment of the SAFE 
                        Hospitals Act of 2021, reduced, in the case of 
                        fiscal years 2024 through 2027, by the 
                        aggregate amount of the reductions which would 
                        have been applicable for the fiscal year under 
                        paragraph (7) of this subsection (as so in 
                        effect).
                            ``(ii) State poverty ratio.--The term 
                        `State poverty ratio' means, with respect to a 
                        State and fiscal year, the ratio of--
                                    ``(I) the number of individuals in 
                                the State in the most recent fiscal 
                                year for which census data are 
                                available whose income (as determined 
                                under section 1902(e)(14) (relating to 
                                modified adjusted gross income) and 
                                without regard to whether an 
                                individual's income eligibility for 
                                medical assistance is determined under 
                                such section) was less than 100 percent 
                                of the poverty line (as defined in 
                                section 2110(c)(5)) applicable to a 
                                family of the size involved; to
                                    ``(II) the number of individuals in 
                                all States in the most recent fiscal 
                                year for which census data are 
                                available whose income (as so 
                                determined) was less than 100 percent 
                                of the poverty line (as so defined) 
                                applicable to the family of the size 
                                involved.''; and
            (6) by redesignating paragraph (9) as paragraph (8).

SEC. 3. PRIORITIZING DISPROPORTIONATE SHARE HOSPITAL PAYMENTS BASED ON 
              MEDICAID INPATIENT UTILIZATION AND LOW-INCOME UTILIZATION 
              RATES.

    (a) In General.--Section 1923 of the Social Security Act (42 U.S.C. 
1396r-4) is amended--
            (1) in subsection (a)(2)(D), by inserting ``(which, as of 
        October 1, 2023, shall meet the requirements of subsection 
        (k))'' after ``methodology'';
            (2) in subsection (c), by striking ``and (g)'' and 
        inserting ``, (g), and, beginning on October 1, 2021, (k)'';
            (3) in subsection (d)(2)(A)--
                    (A) in clause (i), by striking ``; or'' and 
                inserting a semicolon;
                    (B) in clause (ii), by striking the period at the 
                end and inserting ``; or''; and
                    (C) by adding at the end the following new clause:
                            ``(iii) that is an institution for mental 
                        diseases.''; and
            (4) by adding at the end the following new subsection:
    ``(k) State Methodology Requirements.--
            ``(1) In general.--Subject to paragraph (4), a State 
        methodology for identifying and making payments to 
        disproportionate share hospitals meets the requirements of this 
        subsection if--
                    ``(A) the methodology is uniformly applied 
                statewide;
                    ``(B) the methodology identifies each hospital in 
                the State that is described in a disproportionate share 
                hospital tier (as defined in paragraph (2)); and
                    ``(C) in making payments to disproportionate share 
                hospitals, the methodology meets the requirements of 
                paragraph (3).
            ``(2) Disproportionate share hospital tiers.--The term 
        `disproportionate share hospital tier' means each of the 
        following:
                    ``(A) Tier 1 hospitals.--A category of hospitals 
                (referred to in this section as `tier 1 hospitals') in 
                which each hospital satisfies--
                            ``(i) each of the criteria described in 
                        clause (ii) of subparagraph (B); and
                            ``(ii) one or more of the following 
                        criteria:
                                    ``(I) The hospital has a Medicaid 
                                inpatient utilization rate (as defined 
                                in subsection (b)(2)) that is not less 
                                than 2 standard deviations above the 
                                mean Medicaid inpatient utilization 
                                rate for hospitals receiving Medicaid 
                                payments in the State.
                                    ``(II) The hospital has a low-
                                income utilization rate (as defined in 
                                subsection (b)(3)) of not less than 40 
                                percent.
                                    ``(III) More than 70 percent of the 
                                inpatient days for which payments are 
                                received by the hospital are paid for 
                                under the Medicare program under title 
                                XVIII, the Medicaid program under this 
                                title, or the Children's Health 
                                Insurance Program under title XXI.
                    ``(B) Tier 2 hospitals.--A category of hospitals 
                (referred to in this section as `tier 2 hospitals') in 
                which each hospital--
                            ``(i) is not described in the previous 
                        subparagraph; and
                            ``(ii) satisfies one or more of the 
                        following criteria:
                                    ``(I) The hospital has a Medicaid 
                                inpatient utilization rate (as defined 
                                in subsection (b)(2)) that is not less 
                                than 1.5 standard deviations above the 
                                mean Medicaid inpatient utilization 
                                rate for hospitals receiving Medicaid 
                                payments in the State.
                                    ``(II) The hospital has a low-
                                income utilization rate (as defined in 
                                subsection (b)(3)) of not less than 35 
                                percent.
                                    ``(III) The hospital has the 
                                largest number of inpatient days 
                                attributable to individuals entitled to 
                                benefits under the State plan of any 
                                hospital in such State for the previous 
                                State fiscal year.
                    ``(C) Tier 3 hospitals.--A category of hospitals 
                (referred to in this section as `tier 3 hospitals') in 
                which each hospital--
                            ``(i) is not described in a previous 
                        subparagraph; and
                            ``(ii) satisfies one or more of the 
                        following criteria:
                                    ``(I) The hospital has a Medicaid 
                                inpatient utilization rate (as defined 
                                in subsection (b)(2)) that is not less 
                                than the mean Medicaid inpatient 
                                utilization rate for hospitals 
                                receiving Medicaid payments in the 
                                State.
                                    ``(II) The hospital has a low-
                                income utilization rate (as defined in 
                                subsection (b)(3)) of not less than 25 
                                percent.
                    ``(D) Tier 4 hospitals.--A category of hospitals 
                (referred to in this section as `tier 4 hospitals') in 
                which each hospital--
                            ``(i) is not described in a previous 
                        subparagraph; and
                            ``(ii) satisfies the requirement described 
                        in subsection (d)(3).
            ``(3) Payment methodology requirements.--
                    ``(A) Prioritization of hospitals.--In making 
                disproportionate share hospital payments, a State 
                methodology shall prioritize hospitals in the following 
                order:
                            ``(i) Tier 1 hospitals shall receive the 
                        highest priority.
                            ``(ii) Tier 2 hospitals shall receive the 
                        second-highest priority.
                            ``(iii) Tier 3 hospitals shall receive the 
                        third-highest priority.
                            ``(iv) Tier 4 hospitals shall receive the 
                        fourth-highest priority.
                    ``(B) Factors.--The methodology specifies the 
                factors that will be considered in determining the 
                amount of a disproportionate share hospital payment to 
                be made to a hospital, which may include--
                            ``(i) the hospital's net operating margins 
                        (including past net operating margins);
                            ``(ii) past disproportionate share hospital 
                        payments to the hospital;
                            ``(iii) whether the hospital was affected 
                        by a major disaster (as declared by the 
                        President under section 401 of the Robert T. 
                        Stafford Disaster Relief and Emergency 
                        Assistance Act) in the 12 months prior to the 
                        payment; and
                            ``(iv) other relevant factors, as 
                        determined by the State (subject to the 
                        approval of the Secretary).
                    ``(C) Consideration of financial circumstances of 
                high tier hospitals.--
                            ``(i) In general.--The State shall certify 
                        that the State methodology adequately considers 
                        the unique financial circumstances of tier 1 
                        hospitals and tier 2 hospitals, and takes 
                        necessary steps to mitigate net operating 
                        losses by such hospitals.
                            ``(ii) Guidance.--
                                    ``(I) In general.--Not later than 
                                18 months after the date of enactment 
                                of the SAFE Hospitals Act of 2021, the 
                                Secretary shall issue guidance to 
                                States outlining methods that States 
                                may use to satisfy the requirement of 
                                this subparagraph.
                                    ``(II) State alternatives.--Subject 
                                to the approval of the Secretary, a 
                                State may develop an alternative method 
                                for satisfying the requirement of this 
                                subparagraph.
                    ``(D) Treatment of imds and cahs.--The State shall 
                specify how the methodology prioritizes institutions 
                for mental diseases and critical access hospitals (as 
                defined in section 1861(mm)(1)), but in no case shall 
                institutions for mental diseases or critical access 
                hospitals receive a higher priority than tier 1 
                hospitals.
                    ``(E) State authority to reclassify hospitals.--
                Subject to the approval of the Secretary, for purposes 
                of prioritizing disproportionate share payments under a 
                State methodology under this subsection, a State may 
                treat up to 15 percent of all disproportionate share 
                hospitals in the State, excluding institutions for 
                mental diseases, as belonging to a different 
                disproportionate share hospital tier than the tier in 
                which the hospitals are described under paragraph (2).
                    ``(F) Rule of construction.--Nothing in this 
                subsection shall be construed as requiring a State to 
                apply a uniform payment methodology to all hospitals 
                within a disproportionate share hospital tier.
            ``(4) Methodology for states with fewer than 15 
        disproportionate share hospitals.--
                    ``(A) In general.--In the case of a State that has 
                fewer than 15 disproportionate share hospitals, the 
                State shall use the methodology for identifying and 
                making payments to disproportionate share hospitals 
                that is developed by the Secretary under subparagraph 
                (B).
                    ``(B) Development of methodology.--Not later than 
                18 months after the date of enactment of the SAFE 
                Hospitals Act of 2021, the Secretary shall develop a 
                methodology for identifying and making payments to 
                disproportionate share hospitals for States that have 
                fewer than 15 disproportionate share hospitals that 
                prioritizes DSH payments to hospitals with 
                disproportionately high volumes of Medicaid patients 
                and low-income patients.
            ``(5) No effect on waiver authority.--Nothing in this 
        subsection shall be construed as preventing the Secretary from 
        approving a waiver under section 1115 or other law with respect 
        to requirements under this subsection related to the 
        methodology used by States to identify and make payments to 
        disproportionate share hospitals.''.
    (b) Modification of Cap on Individual DSH Payments.--
            (1) In general.--Subparagraph (A)(i) of section 1923(g)(1) 
        of the Social Security Act (42 U.S.C. 1396r-4(g)(1)), as 
        amended by section 203(a) of the Consolidated Appropriations 
        Act, 2021 (Public Law 116-260), is amended by inserting 
        ``(including any costs incurred by the hospital during the year 
        that are associated with subsidizing a physician or a clinic or 
        other health center that is owned and operated by, controlled 
        by, or in common control with the hospital for the purpose of 
        providing care to such individuals)'' after ``individuals 
        described in subparagraph (B)''.
            (2) Conforming amendment.--Section 1923(g)(2)(A)(ii) of the 
        Social Security Act (42 U.S.C. 1396r-4(g)(2)), as amended by 
        section 203(a) of the Consolidated Appropriations Act, 2021 
        (Public Law 116-260), is amended by inserting ``(except that, 
        for purposes of this clause, such paragraph as in effect on 
        such date shall be applied by inserting `, including any costs 
        incurred by the hospital during the year that are associated 
        with subsidizing a physician or a clinic or other health center 
        that is owned and operated by, controlled by, or in common 
        control with the hospital for the purpose of providing care to 
        such individuals' at the end of the first sentence)'' before 
        the period.
            (3) Effective date.--The amendments made by this subsection 
        shall take effect on October 1, 2021.
    (c) Modification of DSH Qualification Requirements.--
            (1) In general.--Section 1923(d)(3) of the Social Security 
        Act (42 U.S.C. 1396r-4(d)(3)) is amended by striking ``unless 
        the hospital'' and all that follows through the period and 
        inserting the following: ``unless the hospital--
                    ``(A) has a Medicaid inpatient utilization rate (as 
                defined in subsection (b)(2)) that is not more than 1 
                standard deviation below the mean Medicaid inpatient 
                utilization rate for hospitals receiving Medicaid 
                payments in the State;
                    ``(B) has a low-income utilization rate (as defined 
                in subsection (b)(3)) that is not less than 10 percent; 
                or
                    ``(C) is a critical access hospital (as defined in 
                section 1861(mm)(1)).''.
            (2) Effective date.--The amendments made by this subsection 
        shall take effect on October 1, 2023.
                                 <all>
SAFE Hospitals Act of 2021
A bill to amend title XIX of the Social Security Act to establish a methodology for determining State allotments for Medicaid disproportionate share hospital payments that is based on State poverty levels, to require States to prioritize disproportionate share hospital payments on the basis of Medicaid inpatient utilization and low-income utilization rates, and for other purposes.
SAFE Hospitals Act of 2021
State Accountability, Flexibility, and Equity for Hospitals Act of 2021
Sen. Rubio, Marco