The BBA contained several provisions that affected the amount and distribution of Medicaid DSH payments. To restrict the use of federal funds to finance care in state-owned institutions for mental disease (IMDs) (which traditionally were viewed as a state and local responsibility), the BBA limited the proportion of a state's DSH payments that could go to IMDs to 33 percent by fiscal year 2002.4
The BBA also reduced the state-specific federal DSH allotments by $10.4 billion between 1998 and 2002. After 2002, federal DSH expenditures are to increase at the nationwide general rate of inflation (all urban CPI), subject to a state-specific ceiling of 12 percent of the state's total Medicaid expenditures in each year (Coughlin, Ku, and Kim 2000). The BBRA later raised the Medicaid DSH ceilings for several states. The BIPA provided further relief by setting 2001 state-specific allotments at 2000 levels adjusted for inflation and setting 2002 allotments at 2001 levels adjusted for inflation. The allotments for states with extremely low DSH payments (defined as FY1999 expenditures greater than zero but less than one percent of total state expenditures) were increased to one percent in FY2001 and increased for inflation thereafter. Also, states were permitted to provide DSH payments up to 175 percent of net uncompensated care costs to public hospitals for two years.
4. The Medicaid statute defines an "institution for mental diseases" as a hospital, nursing facility, or other institution of more than 16 beds, that is primarily engaged in providing diagnosis, treatment, or care of persons with mental diseases, including medical attention, nursing care, and related services.