Medicaid spending could fall 10% to 25% in 17 states as new limits on state-directed payments take effect, according to a study by health policy analyst Debra Lipson.
The study, published in Health Affairs Sept. 9, is based on state-directed payment applications approved by CMS as of May 31 for rating periods beginning in 2024 and 2025, along with CMS financial management reports for fiscal 2024.
Thirty-nine states paid hospitals, nursing facilities or academic medical center professionals more than Medicare rates through state-directed payments, spending an average of $106.3 billion annually across the two rating periods, or 12.5% of their total fiscal 2024 Medicaid spending, the study found. Fifteen states spent 19% or more of their Medicaid budgets on those payments.
For the highest-paying arrangements, those reimbursing at or near the average commercial rate, cutting to Medicare-equivalent rates would require roughly $51.8 billion in annual reductions across 36 states, or 6.4% of their total fiscal 2024 Medicaid spending. Nebraska, Louisiana and South Carolina face the largest reductions.
The 10% to 25% figure assumes states do not receive temporary grandfathered status. If they do, reductions phase in starting January 2028 at an estimated $8.7 billion annually across 36 states.
HR 1 limits state-directed payments to 100% of Medicare rates in expansion states and 110% in nonexpansion states for hospital inpatient, hospital outpatient, nursing facility and academic medical center professional services. The Congressional Budget Office estimated the change would reduce federal Medicaid spending by about $149 billion over 10 years.
Ms. Lipson wrote that lower Medicaid reimbursement will likely increase uncompensated care costs and Medicaid shortfalls, and that providers may limit the number of Medicaid patients they serve or seek higher prices from commercial payers.
A CMS-proposed rule issued in May would extend the Medicare caps beyond the four provider classes specified in HR 1 and eliminate uniform fee increases, the most common state-directed payment type. If finalized as proposed, the study’s estimates would understate total state-directed payment reductions.
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