The Centers for Medicare & Medicaid Services (CMS) has released its proposed rule implementing Section 203 of the Consolidated Appropriations Act of 2021, which altered the calculation of the Medicaid hospital-specific DSH limit to exclude costs and payments for services to Medicaid beneficiaries with third party coverage. The regulation provides a methodology for determining which hospitals qualify for the statutory 97th percentile exemption. This exception allows hospitals in the 97th percentile of all hospitals with respect to Part A/SSI inpatient days to use either the calculation methodology under Section 203 or the methodology in effect on January 1, 2020, whichever is more favorable to the hospital. The exemptions would be determined based on days from previous years’ Medicare cost reports. Being in the 97th percentile of Part A/SSI inpatient days as a percent of reported days or as an absolute number of reported days would both qualify a hospital for the exemption under the proposed rule.