How the GOP's Medicaid cuts could hit big hospital revenues

Context: State-directed Medicaid payments have ballooned in size and allow some providers to now get paid similarly for seeing Medicaid and commercially insured patients.

• That's been great for states, hospitals and arguably Medicaid patients, but not so great for the federal budget.
• It's also a relatively new phenomenon; CMS first allowed states to begin directing managed care organizations to pay providers under certain circumstances in 2016.
• "We've seen sort of the initial explosion of these, so the growth trend is going to be astronomical as more and more states figure out how to game the system," said the Paragon Health Institute's Ryan Long, who until recently was a top GOP health aide on the Hill.

The intrigue: Some reform advocates argue that this is indeed an easier political lift, namely because it's had bipartisan support in the past and most members simply don't know how much providers are being paid to see Medicaid patients these days.

• "We've now constructed a welfare program to be a financial windfall for nonprofit hospitals, and Congress should address that," said Paragon President Brian Blase, who has been on the Hill discussing the think tank's policy views with members.

Spoiler: Providers won't like it if Republicans go this route.

• "If you go after it, either you're going to have hospitals and other settings having to cut back on services, because you're not getting paid sufficiently for them, or you're going to have to go to other payers and there will be more cost shift," Kahn said.

By the numbers: MACPAC has estimated that directed payments approved as of August totaled more than $110 billion in 2024 — a 60% increase over the projections they made based on arrangements approved as of early 2023.

• MACPAC identified 29 payment arrangements that would each increase provider payments by more than $1 billion a year. Most of these raise provider reimbursement rates above the Medicare rate, and 11 bumped up rates to at least 90% of the average commercial rate.
• Commercial payments are often multiples of what Medicare pays, and are frequently criticized as exorbitant.

Health systems were the beneficiaries in 24 of the 29 large payment arrangements.

• HCA received nearly $4 billion from 18 different states in 2023 related to supplemental payment programs, according to a Raymond James investor note from last year. Tenet received nearly $1 billion in 2023, and Universal Health Services expected to receive around $1.3 billion from supplemental programs in 2024.

These payments are often financed through provider taxes, which have been targeted by both parties in the past.

• These taxes, levied by states on providers, ultimately allow the state to get reimbursed more from the federal government.
• Reforms to the policy, depending on how they're structured, could save the federal government hundreds of billions of dollars, per CBO — a solid chunk of the Medicaid money Republicans may need.

What they're saying: Whether this rise in Medicaid payment rates is a good or bad thing depends who you ask.

• Proponents say they help promote access and equity, as Medicaid payments have historically been lower than both commercial and Medicare rates.
• "Higher payments are expected to grow the pool of providers who serve Medicaid patients and improve access to providers that limit the number of Medicaid patients they serve.
• Additionally, as Medicaid becomes a more competitive payer, the policy can provide critical support to safety-net providers," the Commonwealth Fund argued in a blog post last year.
• But critics say the federal government is getting ripped off. Paragon is referring to such measures as "money laundering."