The CMS Volume Decrease Adjustment (VDA) helps qualifying hospitals mitigate financial impact when they experience a sudden, temporary decline in inpatient volume that’s outside of their control.

As health care utilization patterns are affected by workforce shortages, economic shifts, and seasonal disruptions, the VDA has become an increasingly significant financial stabilizer and indicator of broader volume trends that may require attention.

Hospitals that understand the VDA framework and clearly document the factors driving volume disruptions are better positioned to mitigate financial volatility while protecting access to care in their communities.

What Is the CMS Volume Decrease Adjustment?

The VDA is a supplemental payment adjustment available to Sole Community (SCH) and Medicare-Dependent hospitals (MDH), as defined under Section 1886(d)(5)(D) of the Social Security Act, that:

• Experience a more than 5% decrease in total inpatient discharges compared to the prior cost-reporting year, and
• The decrease is due to circumstances beyond the hospital’s control, such as natural disasters, economic shifts, or loss of a local employer population.

If approved, the Medicare Administrative Contractor (MAC) determines an additional payment adjustment under CMS rules to help offset qualifying fixed/semi-fixed costs that remain despite lower volume. These costs may include staffing, utilities, equipment, and other expenses required to maintain essential services.

Common Scenarios That May Trigger a VDA

While eligibility requires that the volume decline be outside of the hospital’s control, this often includes a range of operational and market-driven events, such as:

• Fluctuation of a major local employer or population shift in the service area
• Loss of key physicians, challenges in physician recruitment, or changes in referral patterns
• Service line reductions or temporary unit closures due to staffing constraints
• Migration of inpatient procedures to outpatient settings

Clearly connecting the volume decline to one or more of these factors is a critical component of a successful VDA request.

How the VDA Works

1. The hospital identifies a reduction of more than 5% in total inpatient discharges.
2. Supporting evidence is submitted to CMS through the MAC, including volume comparisons and documentation of external factors.
3. The MAC evaluates eligibility and determines the appropriate adjustment amount based on CMS regulations and guidance.
4. If approved, the adjustment is reflected through the Medicare cost report settlement process, typically as a lump-sum payment.

Because these requests are highly fact-specific, clear and consistent documentation linking the volume decline to external causes and demonstrating the impact, is critical.

Quick VDA Self-Assessment

Hospitals evaluating whether a VDA may apply can start with a few key questions:

• Did total inpatient discharges decline by more than 5% compared to the prior year?
• Can the decline be tied to factors outside of the hospital’s control?
• Did operating costs remain relatively stable despite the decline in volume?
• Is the hospital within the 180-day filing window following the Notice of Program Reimbursement?

Hospitals that see alignment with these indicators often benefit from a preliminary VDA assessment to further evaluate eligibility and potential impact.

Key Benefits of the CMS Volume Decrease Adjustment

Financial Stability During Unexpected Declines

Even short-term drops in patient volume can dramatically affect hospitals operating on thin margins. The VDA helps offset some qualifying costs that don’t decrease when patient volumes fall.

Protects Access to Care in Rural and Underserved Areas

Many SCHs and MDHs are the only hospital within 35–40 miles. The VDA supports continued access to care when community conditions drive temporary declines in volume.

Supports Continuous Staffing and Essential Services

Hospitals must maintain critical services such as emergency care, ICU readiness, obstetrics, and surgical coverage regardless of volume. The VDA helps sustain these services during downturns.

Helps Smooth Out Year-to-Year Volatility

Hospital volumes routinely fluctuate due to economic changes, seasonal variation, payer shifts, and competition. The VDA helps reduce the financial whiplash of these swings.

Reduces Longer-Term Financial Distortion

A temporary decline in volume can ripple through multiple years of Medicare reimbursement, affecting base rates, cost-to-charge ratios, and future settlements. A VDA helps reduce the financial impact of these swings.

Why Awareness of the VDA Is More Important Than Ever

The healthcare environment continues to evolve rapidly, with hospitals facing:

• Shifts in outpatient migration
• Changes in local physician alignment
• Payor steering
• Economic and demographic population shifts

Monitoring these trends can help hospitals identify potential VDA eligibility earlier and act before the financial impact of volume declines is fully reflected in reimbursement. See how a health system successfully navigated the VDA process and recovered $5.4 million in reimbursement.

Proactive monitoring of inpatient volume trends is becoming an essential component of Medicare reimbursement strategy, and the CMS VDA is an important tool that can help hospitals respond to unpredictable utilization changes.

We’re Here to Help

For an objective review of your volume trends and supporting data, eligibility evaluation, or support through the VDA process, request a preliminary assessment or contact your firm professional.

Additional Resources

• Health Care Practice
• Health Care Consulting Services