Illustration: Aïda Amer/Axios

Major health industry groups, governors and state Medicaid directors have all raised significant concerns with a Trump administration proposal that would change the rules and oversight of some forms of state Medicaid financing.

Why it matters: Billions of dollars are on the line for both states and providers, which they say in turn threatens the health care of some of America's most vulnerable people.

The big picture: The proposal from the Centers for Medicare & Medicaid Services, called the Medicaid Fiscal Accountability Regulation, or MFAR, would be mandatory for states.

  • CMS says the proposal, which was announced in November, would strengthen Medicaid program integrity as its costs continue to rise.
  • “We have seen a proliferation of payment arrangements that mask or circumvent the rules where shady recycling schemes drive up taxpayer costs and pervert the system,” CMS administrator Seema Verma said in a statement when the proposal was announced. “Today’s rule proposal will shine a light on these practices."

The other side: Provider groups say the new rules would threaten the money doctors and hospitals rely on to serve Medicaid patients.

  • The American Hospital Association wrote in a comment letter to CMS that MFAR could reduce Medicaid spending by 5.8%–7.6%.
  • Medicaid payments to hospitals could be reduced by $23 billion–$31 billion a year, or by 12.8%–16.9%, per the AHA.
  • The American Medical Association struck a similar tone, saying the rule "could result in the loss of funding for our nation’s most vulnerable patients."

The National Governors Association, similarly, said the rule "will result in decreased access to care for many vulnerable Americans."

  • The National Association of State Medicaid Directors warned that the rule would have unintended consequences, like the destabilization of state budget cycles and "an environment of uncertainty for states."

Between the lines: The rule is deeply technical and wonky, but for some states, it could end up being a much bigger deal than the administration's Medicaid block grant and work requirement proposals simply because it's not optional.

  • That's true in both red and blue states.
  • "The proposed rule would collapse Texas’ already fragile rural health care infrastructure," the Texas Hospital Association wrote in its comment letter.

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