Conservatives push to cut extra Medicaid payments to hospitals
Add Axios as your preferred source to
see more of our stories on Google.
Illustration: Gabriella Turrisi/Axios
A think tank with close ties to the Trump administration is making the case for wonky changes to state Medicaid payments that could solve a big problem for Republican lawmakers: They could cut federal spending in the name of simply cracking down on waste and abuse within the program.
The big picture: State-directed Medicaid payments have grown rapidly, and there's been bipartisan support for reining them in.
- But slashing or getting rid of the payments would be a big financial hit for providers, and especially hospitals, who vehemently disagree that the payments are wasteful.
Driving the news: Paragon Health Institute released a report Wednesday characterizing state-directed payments as "legalized Medicaid money laundering."
- States can tax providers or use other means to increase their state share of Medicaid funding, which allows the state to draw down additional federal Medicaid dollars. States can then use that extra money to increase payments to providers.
- "Not 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," the report says.
Zoom in: State-directed payment arrangements approved as of last August are projected to cost more than $110 billion per year, a nearly 60% increase over cost projections from early 2023.
- A small portion of these arrangements are driving most of the increase, according to independent Medicaid advisers to Congress.
What they're saying: "All of this is fits within waste and abuse in the program," Paragon President Brian Blase, who co-authored the report, told Axios. "Congress, looking at $2 trillion budget deficits, needs to make significant reform to the federal-state partnership" in Medicaid.
- The report advocates for Congress to cap the amount of federal Medicaid funding states can receive, though it acknowledges that such a change is unlikely.
- The report also recommends other policy changes, like prohibiting states from using provider and insurer taxes to finance Medicaid payments, ending or capping state-directed payments and stopping policy consultants from being paid with Medicaid funds.
Between the lines: The Government Accountability Office and independent Medicaid advisers have both said in recent years that state-directed payment arrangements need more oversight. Democratic lawmakers have also advocated changes to provider taxes.
- The Biden administration last year finalized a rule to increase transparency into state-directed payments. The Paragon report says the rule helped, but that it should still be repealed over fiscal concerns.
The other side: Hospitals say patients' access to care could suffer without the supplemental payments.
- "Let's be clear: provider taxes and state directed payments provide the means to offset the crippling underpayment by Medicaid for critical care that meets the medical needs of so many kids, mothers, disabled, and seniors," Chip Kahn, president and CEO of the Federation of American Hospitals, said in a statement to Axios.
- Taking federal money out of the Medicaid system may ultimately force hospitals to cut back services or staff, affecting beneficiaries' access to care, said Megan Cundari, senior director of federal relations for the American Hospital Association.
What we're watching: Blase said his team is having discussions with congressional offices.
- Still, lawmakers tend to be very protective over their districts' hospitals, which could make changes an uphill battle.
- "Everybody knows this is a scam, but it benefits hospitals," Blase said of his team's conversations on Capitol Hill.
