New Bill Lets States Tap Unspent Medicaid Funds to Boost Safety-Net Hospital Payments Retroactively

The “Save our Safety-Net Hospitals Act of 2025” is a technical bill with a big financial punch for hospitals that serve a lot of Medicaid patients. Essentially, it’s updating the rulebook for how states calculate Disproportionate Share Hospital (DSH) payments—the critical federal funds that keep many of our community hospitals afloat, especially those in underserved areas. This legislation makes two main changes: it tweaks the math for future payments and, crucially, it unlocks unspent federal money from the recent past.

Tweaking the DSH Math

First, the bill changes who counts when a hospital calculates its eligibility for these extra DSH payments. Previously, certain patient costs were excluded from the calculation. This bill removes that exclusion. Now, the calculation for a hospital’s DSH eligibility will include patients whose medical care is paid for by Medicaid, even if Medicaid is only the secondary payer after another insurer, like Medicare, has paid its share. This only applies if the hospital’s total cost for treating those specific patients exceeds the total amount the hospital was paid by all sources for that year. The takeaway? By broadening the definition of who counts, more hospitals might qualify for higher DSH payments, giving them a much-needed financial boost to cover the actual cost of care (SEC. 2).

Unlocking the Leftover Cash

Here’s the part that impacts the bottom line immediately: The bill allows states to go back and use federal DSH funds they were allotted but didn't spend for rate years starting after October 1, 2021. Think of it like finding money in the couch cushions. States can now take that leftover federal share and increase DSH payments to hospitals for those past years. This is a huge win for hospitals that were struggling during the pandemic and subsequent years, as it provides a sudden influx of cash flow without hitting the state budget. However, there’s a hard cap: the total payments for that past year still can’t exceed the original federal allotment for that state (SEC. 2).

Protecting Past Payments

This bill also offers a layer of protection for hospitals. If a state decides to use this new authority to boost a hospital’s DSH payment for a past year, they can’t turn around and try to claw back (recoup) any DSH payments that were already made to that hospital for that same period, as long as those original payments followed the rules that were in place at the time. This prevents states from using the new rules as an excuse to audit and reclaim funds hospitals legitimately received under the old regulations. To make all this retroactive funding legal, the bill allows states to go back and fix their official Medicaid State Plans—a necessary administrative step, provided they do so before the deadline for submitting the required annual audit (SEC. 2).

The Real-World Impact

For the everyday person, this bill is about keeping the lights on at your local hospital. Many safety-net hospitals—the ones that treat everyone regardless of their ability to pay—rely heavily on DSH payments. If you live in a rural area or a low-income urban center, stabilizing these hospitals means you keep access to emergency services, maternity care, and specialists. By allowing states to use previously unspent federal funds, the bill provides a rapid, non-taxpayer-funded financial lifeline to these crucial community resources. While the technical language is dense, the goal is simple: ensure hospitals that serve the most vulnerable populations have the resources to cover their costs.