Medicaid provider payments take a hit in budget reconciliation bill

As released over the weekend, formalized plans to reduce federal Medicaid spending would have an impact on future state-directed supplemental payments and other aspects of the program.

The House Energy and Commerce (E&C) Committee published its portion of a budget reconciliation bill that would slash 10-year projected federal spending. As expected, Medicaid would incur the brunt of the committee’s proposed rollbacks, with repercussions for enrollment.

Nothing is final since the text can be changed during a committee session scheduled for May 13, and then it must pass the full House even before the Senate weighs in. But the language provides the first official look at the plans of congressional Republicans for part of the reconciliation bill they’re hoping to pass over the next couple of months.

The bill leaves out sweeping Medicaid changes such as per capita caps and a large-scale retrenchment of funding for the expansion population, but it nonetheless would affect provider payments and, in turn, coverage.

In a preliminary analysis, the Congressional Budget Office (CBO) projected that 8.6 million additional people would be uninsured in 2034 as a result of the legislation. Estimated savings to the federal deficit through cuts to Medicaid and other government programs under E&C oversight would total $912 billion, surpassing the committee’s target figure of $880 billion. The CBO was working on an official analysis as of late Monday and said its numbers could change.

The number of uninsured would rise to 13.7 million, according to the early analysis, when accounting for the possible year-end expiration of the enhanced subsidies for buying Affordable Care Act marketplace insurance and also considering a March 2025 proposed rule that seeks to rein in marketplace enrollment.

Targeting state-directed payments

After a 2024 final rule clarified that state-directed payments (SDPs) from Medicaid managed care organizations (MCOs) to providers could equal the applicable commercial payment rate, the budget reconciliation bill would impose a tighter cap.

Per an official summary of the E&C bill text, new SDPs may not surpass the Medicare payment rate, a key restriction since commercial payments to hospitals exceed the Medicare rate by an estimated 223%, according to data cited in a 2024 report.

Notably, however, the new restriction would not be retrospective. SDPs that are in place could remain at their current rate.

A key funding mechanism for SDPs would be restricted, with provider taxes frozen at their current rates. More importantly, states would be barred from enacting new provider-focused taxes.

The bill also includes a stricter definition of generally redistributive with respect to tax payments, referring to criteria used to ensure taxes assessed on providers or Medicaid MCOs aren’t linked to their Medicaid revenue (any such arrangement is generally impermissible, according to longstanding statutory language). States that have received waivers of the criteria would need to comply with the stricter definition after a transition period. CMS on May 12 published a proposed rule that would address the same issue.

The bill text does not include a large-scale rollback of federal funding for the Medicaid expansion population, instead eliminating only the enhanced federal medical assistance percentage (FMAP) that has been available via the American Rescue Plan Act. States that have expanded eligibility since passage of the 2021 law will retain the authorized 5% increase.

New obligations for beneficiaries

While funding provisions are projected to result in potentially significant coverage losses, the part of the budget reconciliation bill most directly geared toward beneficiaries is the imposition of work requirements.

Able-bodied adults without dependents would retain eligibility for Medicaid coverage by spending 80 hours a month in some combination of employment, engagement in community service, participation in a work program or enrollment in an educational program.

Groups that traditionally have been eligible for Medicaid would be exempt from the requirement. Among those groups are pregnant women, individuals who are considered medically frail and those who already meet the work requirements of federal programs offering cash assistance and assistance with food purchases.

States would need to take steps to streamline and simplify compliance requirements to, ideally, avoid some of the snags that have hindered state-initiated work-requirement programs.

In Arkansas, for example, 18,000 people lost Medicaid coverage, many of them due to administrative obstacles, before a federal court overturned the work requirement. Georgia is the lone state with an ongoing program, according to KFF’s tracker, and roughly 15 months after the program’s launch, only 5,100 of an estimated 175,000 eligible beneficiaries had enrolled.

Adult beneficiaries covered by the Medicaid expansion also would face cost-sharing requirements if their income exceeds the federal poverty level. Cost sharing would be a maximum of $35 per service and could not exceed 5% of a beneficiary’s income. Primary care would not be subject to cost sharing, nor would prenatal, pediatric and emergency care.

Going after fraud and waste

The budget reconciliation bill also would take various steps to fix what critics say are issues with Medicaid program integrity. For example, there would be new requirements for states to ensure providers have not already been terminated from another state’s Medicaid program. If such a termination has happened, the provider would be subject to disenrollment in all states.

For all intents and purposes, the bill also would cancel regulations issued by the Biden administration to streamline eligibility determination, enrollment and coverage renewals for enrollees in Medicaid and state-administered Medicare Savings Programs. Implementation of those rules would be postponed until 2035.

Mandates to confirm enrollee addresses and conduct screening to ensure individuals are not signed up for Medicaid in multiple states and do not remain enrolled after death also are included in the bill. For the Medicaid expansion population, eligibility redeterminations would be required every six months instead of yearly.

Federal Medicaid funding would be restricted for individuals whose citizenship, nationality or satisfactory immigration status has not been verified, and states that provide coverage for illegal immigrants as part of expansion would face penalties. Similarly, federal funding would be barred for specified gender transition procedures for minors. Medicaid funding also would be curtailed for providers of abortion services.

Miscellaneous items of note

The start of a scheduled three-year, $24 billion cut to disproportionate share hospital payments would be postponed from 2026 to instead begin in 2029. The scheduled payment cut already has been modified and delayed for more than a decade.

Physician advocates are likely to welcome a big change that would eliminate the much-criticized Medicare fee-schedule conversion factor in favor of an annual inflation-based update as determined by the Medicare Economic Index. Unlike over the last decade, there would be no payment incentive for physicians to participate in alternative payment models.

The Biden administration’s 2024 rule establishing staffing standards for long-term care facilities would be delayed until 2035 instead of taking effect for most facilities starting in 2026.

Key components of the Trump administration’s ACA marketplace program integrity proposed rule would be codified in the budget reconciliation bill.

Pharmacy benefit managers (PBMs) would be prohibited from engaging in spread pricing and would have to take steps to promote transparency in their business practices.