Providers could bear brunt of state COVID-19 Medicaid cuts

States across the country are considering Medicaid cuts to shore up budget shortfalls caused by the COVID-19 pandemics, and federal restrictions could mean the brunt of cuts could fall on provider payments.

Governors in New York, California, Colorado, Ohio, Alaska, and Georgia have already indicated they plan to cut Medicaid spending. Congress increased federal matching funds in its second COVID-19 relief package, but included restrictions that leave states few options to cut Medicaid other than slashing provider payments. If pay cuts aren't targeted, they could inflict further damage on safety-net providers that have already been disadvantaged by formulas to distribute federal assistance.

The Families First Coronavirus Response Act, passed on March 18, bumped federal Medicaid matching funds by 6.2%. But the money came with conditions. To receive the funds, states had to agree to not restrict eligibility, increase premiums, or kick beneficiaries off of Medicaid rolls.

Additional CMS guidance says that states also have to maintain benefits if they want to keep federal funds, but Kaiser Family Foundation vice president Robin Rudowitz said there is some ambiguity about exactly how stringent that restriction is. For example, California Gov. Gavin Newsom (D) proposed cutting optional benefits. Regardless, states are left with few options to achieve general fund savings.

"I think the choices are pretty limited and none of them are great," Rudowitz said.

In Colorado, hospitals could be facing roughly $200 million to $250 million in Medicaid pay cuts and increased provider fees as state lawmakers wrangle with the budget this week, Colorado Hospital Association senior vice president Katherine Mulready said. The association calculated that even after accounting for projected federal provider relief grants, hospitals across the state are facing a $3 billion shortfall.

"These cuts are dire," Mulready said.

New York has already passed a $400 million cut to hospitals. Greater New York Hospital Association President Kenneth Raske said he thinks the cuts were targeted well to protect safety-net hospitals, but he worries more cuts could be coming if Gov. Andrew Cuomo (D) makes good on his warning that hospitals could face 20% cuts if the federal government doesn't help.

Raske said the reality of budget shortfalls may outweigh what he views as the injustice of cutting provider payments during a pandemic.

"The states are getting hammered, and everyone realizes there are only so many places they can go. The morality may be unjust, but the fiscality of it is real," Raske said.

Beyond decreasing revenue, states are also facing increased Medicaid enrollment and many states expect Medicaid budget shortfalls next fiscal year, according to a survey by the Kaiser Family Foundation.

States have to make significant Medicaid program cuts to see general fund savings because every dollar in state cuts also cuts federal matching money, said Center on Budget and Policy Priorities senior fellow Judith Solomon. That means some providers could see substantial cuts.

In 2009 when a federal relief package stopped states from restricting eligibility, they turned to provider pay cuts, per data from the Kaiser Family Foundation. In 2008, 21 states enacted at least one provider rate restriction or cut. That number had nearly doubled to 39 states in 2010.

But this economic downturn is different — it's also a public health crisis.

If states cut Medicaid provider payments, it could be another blow to safety-net providers that have already been disadvantaged by formulas used to distribute federal relief funds.

HHS sent out initial rounds of grant money based on providers' net patient revenue, which rewarded providers that see more privately insured patients.

A Kaiser Family Foundation analysis of the first $50 billion in general provider relief funds distributed by HHS found the 10% of hospitals with the highest private insurance revenue were paid $44,321 per bed, compared with $20,710 for the 10% of hospitals with the lowest private insurance revenue.

Foley Hoag partner Thomas Barker said the net patient revenue metric HHS chose to send out funds allocated in the Coronavirus Aid, Relief, and Economic Security Act didn't give providers with high-Medicaid payer mixes the help they need.

"The real danger is that providers that rely on Medicaid funding have not been targeted in any of the CARES funding," Barker said.

An HHS spokesperson said that the general grant formula based on net patient revenue took into account all payer sources.

House Democrats' proposal for the next COVID-19 relief bill the chamber passed on Friday would funnel $500 billion to state governments and bump federal matching funds to a total of 14 percentage points through June 2021.

Healthcare policy experts said the funds would likely help states avoid or mitigate provider pay cuts. Solomon said funding increases while keeping the maintenance of effort requirements would actually help providers, as it's better for providers to have more people covered.

But leaders of the GOP-led Senate have made clear they have no intention of taking up the legislation as-is, and it's unlikely the Senate will take up any major legislation before June.

"The only hope we have at this point is additional federal relief, because state budgets are suffering as much as hospitals," Mulready of the Colorado Hospital Association said.