After Congress cut Medicaid funding, Trump administration proposes deeper cuts to providers
The Trump administration, through the Centers for Medicare and Medicaid Services (CMS), has issued a proposed rule that would impose tighter restrictions on what are known as 'state-directed payments' — supplemental payments that states make to providers under their Medicaid programmes. A draft of the document, reviewed by STAT News, shows the federal government aiming to lower the Medicaid percentages allowed for these payments and narrow the methods states may use to claim additional financing. If the regulation takes effect as drafted, a tool that states have used over the past decade to maintain provider financial stability will be substantially weakened.
The regulatory proposal is the second step of a two-stage cut strategy used in tandem with the passage of the much-debated Medicaid budget package by Congress earlier this year. The first step, taken legislatively, tied state-directed payment levels to Medicare comparison benchmarks; that reduced states' available funding by roughly 25 billion dollars per year. This second step is now intended to deepen the cut administratively through the federal regulatory authority.
Robin Rudowitz, the lead Medicaid policy analyst at the Kaiser Family Foundation, told STAT News that 'states use these payments to bring providers serving Medicaid patients closer to Medicare-level reimbursement; narrowing the mechanism could choke off a vital flow of funding, especially for rural hospitals.' Rudowitz also noted that the volume of state-directed payments at the federal level has more than quadrupled in the past decade, exceeding 100 billion dollars.
Stacey Hughes, executive vice-president at the American Hospital Association (AHA), said in an official statement that the proposed rule 'puts at risk the access-to-care commitments of hospitals that serve low-income patients and will produce severe operational difficulties, particularly in states where Medicaid plays a major role in state budgets, such as Mississippi, Louisiana, Alabama and West Virginia.' The AHA said it will submit a comprehensive technical package to narrow the rule's scope during the CMS 60-day public-comment window.
On the other side, Republican policy circles frame the cuts as 'a correction of Medicaid's misuse in favour of hospital lobbying groups.' Robert Moffit, director of health policy at the Heritage Foundation, told STAT News that 'states are essentially using these payments to maximise their own tax dollars; the federal government must restrict uses that exceed the mechanism's original intent.' That Republican policymakers aim to contract Medicaid's total federal spending by around 250 billion dollars annually is explicitly stated in the Republican Senate Health Committee's April budget text.
On the provider side, the long-term-care sector is particularly concerned. Mike Cheek, senior vice-president at the American Health Care Association (AHCA), told STAT News that 'nursing homes and long-term-care centres have already lost about nine per cent in operating margin over the past three years; an additional state-directed-payment cut could lead to roughly a thousand facilities closing.' Based on a survey of member organisations, AHCA estimates that more than 250,000 elderly-care patients across the United States could face displacement.
Professor Mark McClellan of Duke University's Margolis Center for Health Policy, a former CMS administrator during the Bush administration, said in a comment that 'all of Medicaid's reform debates are now compressed inside the federal-state tension — technical regulations introduced for structural cost savings appear in practice to weaken rather than support the current hospital system structure.' McClellan added that 'the downstream effects of these cuts on the health economy over the next three years are difficult to forecast today.'
On the congressional side, Democratic Senator Ron Wyden (Oregon) said at the Senate Finance Committee's Friday session that 'the CMS proposal makes clear that Medicaid is being used not as a free benefit but to dismantle the direct provider system — the Senate is asking that this proposal be discussed before it takes effect.' Wyden and Republican Susan Collins (Maine) have issued a joint letter calling for a comprehensive Senate-floor hearing in the coming weeks.
The regulation's financial impact is complex. CMS's official estimate document projects the proposal will save the federal government 18 to 22 billion dollars annually and impose 6 to 8 billion dollars in additional fiscal burden on states. Whether states cover that gap through their own tax revenues or by narrowing Medicaid coverage — particularly in the northeastern states — has been identified by policy analysts as a key tracking point over the next three years.
The public comment window is open until 23 July; CMS aims to publish a final version of the regulation between late September and October. This article is not medical advice; for personal or institutional decisions on health policy and Medicaid services, consultation with qualified health administrators and legal counsel is recommended.