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A man waits for health care at a temporary health clinic in Terre Haute, Ind. President Donald Trump\u2019s new tax and spending law will likely force more than half the states to reduce payments to doctors and hospitals that treat Medicaid patients, a change critics warn could reduce health care options for people in rural areas (Spencer Platt\/Getty Images).<\/p>\n
President Donald Trump\u2019s new tax and spending law will likely force more than half the states to reduce payments to doctors and hospitals that treat Medicaid patients, a change critics warn will be particularly harmful to rural hospitals struggling to stay afloat.<\/p>\n
Medicaid, the joint state-federal health insurance program for low-income people, reimburses doctors, hospitals and nursing facilities for treating enrollees. But in many cases, the program doesn\u2019t fully cover the cost of care, straining providers that serve a large share of Medicaid patients.<\/p>\n
To help providers cover losses and continue to serve poorer populations, the federal government allows the 41 states, plus the District of Columbia, that have contracted with Medicaid managed care organizations (MCOs) to run their Medicaid programs to direct them to pay providers more \u2014 in some cases, as much as commercial plans.<\/p>\n
Ultimately, taxpayers cover the costs of these so-called state directed payments \u2014 and those costs are growing. As of August 2024, the higher payments were projected to add $110.2 billion<\/a> per year to Medicaid spending, nearly 60% more than the previous year\u2019s projection.<\/p>\n That higher spending attracted the attention of conservatives on Capitol Hill.<\/p>\n Beginning in 2028, the One Big Beautiful Bill Act will cap the payments, forcing state Medicaid programs to reduce reimbursement rates by 10 percentage points each year until they reach either 100% or 110% of what Medicare pays. States that expanded Medicaid under the Affordable Care Act would be capped at the lower rate.<\/p>\n The new law will reduce Medicaid spending by $149 billion over the next decade<\/a>, according to the Congressional Budget Office, and reduce Medicaid provider payments in as many as 31 states<\/a>, according to KFF, a health policy research group. A separate analysis by The Commonwealth Fund, another research group, found that Medicaid payments to hospitals would drop by at least <\/a>20% in 19 of the 25 states that had publicly available data.<\/p>\n Critics say the change could be disastrous for hospitals, many of them in rural areas, that see a large share of Medicaid patients.<\/p>\n \u201cThis is all on top of an already pretty strained financial situation for rural hospitals,\u201d Alexa McKinley Abel, director of government affairs and policy at the National Rural Health Association, a group representing rural health care providers, said in an interview. \u201cWe are worried about seeing service line closures at hospitals in an environment where OB-GYN and chemotherapy service lines are already being cut.\u201d<\/p>\n Supporters of the change say the extra payments inflate federal spending on the Medicaid program, giving hospitals \u201cwindfall profits.\u201d<\/p>\n \u201cNot only do these programs sidestep the truly needy on Medicaid and favor special interests instead, but all this is financed by growing the federal debt, leading to inflation and higher interest rates for all Americans,\u201d the Paragon Health Institute, a conservative think tank that helped draft the bill, stated in a policy brief.<\/p>\n Hospital leaders dispute that. Earlier this year, the American Hospital Association asserted that without the extra payments, Medicaid managed care organizations in 2023 only covered about two-thirds<\/a> of the actual cost of care.<\/p>\n Cindy Samuelson, senior vice president of the Kansas Hospital Association, said the additional payments are especially critical in a rural state such as Kansas, where some researchers have found that 87% of rural hospitals are in the red. Kansas is one of 10 states that did not expand Medicaid, and like other nonexpansion states, it will have to begin reducing direct payments to 110% of what Medicare pays starting in 2028.<\/p>\n \u201cOver time, commercial payers are paying less and less,\u201d Samuelson said. \u201cMany hospitals in our state are at risk of closure.\u201d<\/p>\n Samuelson said that in rural areas, health care providers see fewer patients, which makes it hard to spread out the cost of care and make up for losses that come from serving underinsured, Medicaid and Medicare patients. One result is that rural hospitals are trimming services. A report<\/a> published this year by Chartis, a health care consulting firm, found that between 2011 and 2023, nearly 300 rural hospitals across the country stopped offering obstetrics care, and 424 rural hospitals ceased chemotherapy services.<\/p>\n In Hutchinson, Kansas, Benjamin Anderson, CEO of the rural and community-owned Hutchinson Regional Health System, said his hospital barely broke even this year, and lower Medicaid payments will take a toll. The 190-bed hospital serves more than 65,000 people in the central Kansas region, and sees a lot of patients who are struggling with mental health issues and substance use disorders.<\/p>\n When we think about the cuts to Medicaid, it isn’t simply about cutting services to the poor. It’s threatening services to everyone.<\/p>\n<\/div>\n \u2013 Benjamin Anderson, CEO of Hutchinson Regional Health System<\/b><\/p>\n<\/div>\n<\/div>\n \u201cWe are closely managing our workforce expenses. We\u2019re going to be relying more heavily on philanthropy,\u201d Anderson said, adding that the hospital wouldn\u2019t lay off staff but would reduce the number of workers by not filling open positions.<\/p>\n He said his hospital has some cash reserves that should enable it to keep going, but that many other rural hospitals lack such a cushion.<\/p>\n \u201cWhen we think about the cuts to Medicaid, it isn\u2019t simply about cutting services to the poor. It\u2019s threatening services to everyone, because in a rural community, we all get care in the same place,\u201d he said. \u201cIf we cut out the safety net that\u2019s sustaining these hospitals, everyone\u2019s health care is threatened.\u201d<\/p>\n Three hours northeast of Hutchinson is the rural town of Holton, where about 3,400 people live. Holton Community Hospital is a 14-bed critical access hospital, meaning that it provides emergency care around the clock for a rural community. For the past two years, it has been struggling, according to Carrie Lutz, the hospital\u2019s CEO.<\/p>\n Lutz said the hospital is not part of a broader health care group, and it relies on philanthropy and local taxes. Due to financial strains, it\u2019s in the process of selling off its home and hospice services to another health care facility. The cap on extra payments will be an additional barrier, she said.<\/p>\n Samuelson said Kansas is applying for money under the five-year, $50 billion Rural Health Transformation Program, which Congress added to the One Big Beautiful Bill Act amid concerns about its impact on rural hospitals. She expects Kansas to get at least $500 million between 2026 and 2030.<\/p>\n Rural hospitals in Mississippi also hope to tap into those funds. The Mississippi Hospital Association, which is advising state leaders on their application, said it expects Mississippi to get at least $500 million over the next five years.<\/p>\n Like Kansas, Mississippi did not expand Medicaid under the Affordable Care, a decision that deprived it of additional Medicaid patients and thus extra revenue.<\/p>\n \u201cA few years ago, we had several rural hospitals that were facing some imminent closure challenges, and so our enhanced supplemental payment based on the average commercial rate has been a lifeline,\u201d said Richard Roberson, president and CEO of the Mississippi Hospital Association.<\/p>\n \u201cWhat we\u2019re concerned about is that when those payments start to decrease, then we\u2019re going to be right back to where we were in 2022, with concerns about rural hospitals again.\u201d<\/p>\n Roberson said Medicaid, with the additional payments, had become \u201cone of the best payers, if not the best payer, for our hospitals over the last two years,\u201d and helped a lot of hospitals stay out of the red.<\/p>\n He said the new rural health care fund is promising, but noted that Mississippi will decide where to spend any money it gets, and some rural hospitals might miss out.<\/p>\n \u201cWe want to make sure we\u2019re working with the state to provide sustainable solutions, not one-time fixes,\u201d Roberson said. \u201cThe big wild card is the Rural Health Transformation fund and what the state chooses to do with that money.\u201d<\/p>\n Stateline reporter Shalina Chatlani can be reached at schatlani@stateline.org<\/a>.<\/em><\/p>\nCovering the cost of care<\/h4>\n
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