For hospitals that depend on 340B savings, optimizing the Disproportionate Share Hospital (DSH) percentage that drives 340B eligibility should be treated as a financial and operational priority. In simple terms, DSH eligibility is based on a hospital’s level of service to low-income patients, and falling below certain thresholds can put 340B access at risk. Hospitals that are close to the 8.00% or 11.75% thresholds should act early, because even small changes in patient mix or reporting can affect eligibility. In our view, hospitals should aim for a DSH percentage in the 9.50% – 10.50% or 14% – 16% ranges to address the anticipated reductions in Medicaid enrollees and utilization pattern shifts.
The financial stakes can be substantial. Preserving or regaining 340B eligibility can mean millions of dollars in annual value, but getting there usually requires a hospital to look outside of increasing Medicaid days only. Total inpatient days and the Medicare SSI ratio are the two other primary components of the DSH calculation that often get overlooked. A significant number of hospitals will need to take a deep dive into all three components to remain 340B eligible.
Hospitals should review whether their current DSH calculation process is optimized, identify missed eligibility/enrollment issues that could improve the current results, and evaluate possible long-term strategies based on expected benefits, time to implement, operational complexity, and return on investment. Some actions may help in the near term and affect an upcoming cost report, while others may take several years to fully implement and produce results. Blue & Co. has been working with hospitals throughout the nation to assess current practices and implement strategies to address sustainable DSH percentage health.
Because of this, DSH performance should not be viewed as only a reimbursement issue. It should be managed as an enterprise effort involving finance, reimbursement, revenue cycle, and operations. The key takeaway for CFOs is straightforward: if your hospital is close to the DSH threshold, do not wait until the cost report is filed or eligibility becomes a concern. A proactive DSH assessment can help leadership understand what drives the calculation, identify practical improvement opportunities, estimate the financial impact, and protect 340B access as quickly as possible while building a more stable position for future years.
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Blue & Co.’s healthcare reimbursement specialists bring deep experience helping hospitals evaluate their DSH calculations, uncover missed opportunities, and implement practical, sustainable strategies tailored to their operations. Our team of experts can assist you through data-driven insights and hands-on support to strengthen your DSH strategy and protect the long-term value of your 340B program. Connect with one of our experts today.
Nick Ficklin, CPA, FHFMA, Director
Shawn Barney, CPA, CHFP, Manager
