New Law Lets States Retroactively Boost Hospital Payouts Using Unspent Funds From 2021 Onward

The Save Our Safety-Net Hospitals Act of 2025 is primarily an accounting cleanup bill for Medicaid’s Disproportionate Share Hospital (DSH) payments. These DSH payments are basically extra funds given to hospitals that serve a high number of low-income patients (the safety net) to help cover costs that Medicaid rates often don't meet.

The New Math: Counting All the Money

Section 2 of this Act changes the math on how states calculate these DSH adjustments. Currently, DSH payments are meant to cover the gap between what it costs a hospital to treat Medicaid patients and what the hospital actually gets paid. The new rule says that when states calculate this gap for a specific hospital, they now have to factor in payments the hospital received from Medicare and private health plans, not just Medicaid. This is a significant change because it forces a more comprehensive look at a hospital's revenue stream when determining how much uncompensated care it actually has. For hospitals, this means the overall calculation of their losses might shift, potentially reducing the final DSH payment if they have high Medicare or private insurance revenue, though the bill also specifically includes provisions to account for underpaid care for patients eligible for both Medicare and Medicaid, which is a win for those hospitals absorbing those losses.

Clearing Out the Couch Cushions: Retroactive Funding

Perhaps the most immediate impact of this bill is the administrative flexibility it grants states. If a state didn't spend all of its federal DSH allotment for any rate year starting on or after October 1, 2021, it can now go back and use that leftover money to increase DSH payments to hospitals for those past years. Think of it like finding money in the state’s budget that was earmarked for safety-net hospitals but never spent—now they can send it out. States can even retroactively amend their official Medicaid state plans to make this happen, provided they submit the paperwork before the audit deadline for that specific year. Crucially, the bill explicitly says that if a state decides to boost these old payments, they can’t claw back any payments they already made to hospitals for those years, which provides financial security to hospitals that already received their initial checks.

What This Means for the Safety Net

For the hospitals that serve the most vulnerable populations, this bill is a potential financial lifeline. It means that safety-net hospitals could receive a lump sum of backdated funding, potentially stabilizing their budgets after a few rough years. This matters to everyone, even those with private insurance, because financially stable safety-net hospitals ensure that emergency rooms and specialized services remain available in the community. However, the new DSH calculation methodology is complex and could lead to administrative headaches for states and hospitals trying to reconcile the new rules with the old audit deadlines. Furthermore, while the retroactive funding is a clear benefit, the prospective change to how DSH is calculated—by including Medicare and private payments—could change the landscape of future DSH funding, forcing hospitals to adjust their financial planning based on a much broader definition of 'uncompensated care.'