CMS has released guidance in preparation for State Plan Rate Year 2011 (SPRY) Medicaid disproportionate share hospital (DSH) audits and reports due at the end of 2014. By way of background, on December 19, 2008, CMS published a final rule implementing federal DSH reporting and auditing requirements. CMS provided a transition period to allow adequate time for CMS, states, auditors, and hospitals to work cooperatively in developing and refining DSH reporting and auditing techniques while attempting to mitigate fiscal impact realized by states and hospitals. The SPRY 2011 audits and reports are the first that fall outside of the regulatory transition period. As discussed in the guidance, CMS will regard audit findings demonstrating DSH payments that exceed the hospital-specific DSH limits as representing discovery of overpayments to providers. The new guidance addresses various operational issues associated with audit protocols and calculation of costs.