DOGE sets sights on Medicaid: New York Times

President Donald Trump's Department of Government Efficiency, led by Elon Musk, aims to reduce federal spending by $1 trillion, with Medicaid emerging as a likely target, The New York Times reported Feb. 3. 

Mr. Musk's DOGE team has requested access to CMS systems, which manage more than $1 trillion in annual payments, according to documents obtained by the Times. This effort, led by Mr. Musk's longtime associate Steve Davis, aligns with a broader push to reduce federal spending by scrutinizing payments and contracts.

Hospital and health system leaders are closely monitoring potential changes to Medicaid funding, citing concerns about financial stability and patient access.

"This is the most vulnerable population impacted by these federal programs, and in Washington state, there has not been a rate increase to Medicaid reimbursement for 22 years until last year when the [Safety Net Assessment Program] was enacted," Mary Beth Formby, CFO of Renton, Wash.-based Providence's North Division Puget Sound and Alaska Regions, told Becker's. "There is a lot of uncertainty and confusion that has been stirred up, so there's definitely a lot of concern in this space."

Mr. Musk's cost-cutting philosophy — previously applied at Tesla, SpaceX and X — now extends to federal spending, with a particular focus on eliminating what he claims are "fraudulent payments," according to the report. 

The federal deficit in fiscal 2024 was $1.8 trillion, with $236 billion in improper payments in fiscal 2023, according to a recent report published by the Government Accountability Office. The $236 billion in improper payments was down about $11 billion from the previous fiscal year.

Beyond CMS, DOGE has gained access to the Treasury Department's payment systems, potentially enabling greater influence over federal disbursements.

The implications for healthcare providers are significant. If DOGE imposes abrupt funding changes, hospitals and health systems reliant on Medicaid reimbursements could face financial instability. As the administration pushes forward, hospital executives must prepare for potential policy shifts that may affect payment structures, contract negotiations and long-term financial planning.

While the Trump administration said it will not cut Social Security and Medicare, Medicaid and Affordable Care Act subsidies remain vulnerable, potentially leading to higher uninsured rates and increased financial pressure on hospitals, according to a Jan. 22 report published by TD Economics. 

Republican lawmakers have previously proposed per-capita spending caps or block grants, which would limit federal Medicaid funding and shift more costs to states over time. The Congressional Budget Office estimated that such changes could reduce federal Medicaid spending by $900 billion over the next decade, forcing states to cut eligibility, reduce benefits or raise taxes.

Other potential Medicaid changes could include:

  • Stricter enrollment and renewal requirements, making it harder for eligible individuals to maintain coverage.
  • Elimination of provider taxes, which many states use to help finance Medicaid.
  • Potential work requirements, which could lead to coverage losses among low-income adults.

The enhanced ACA premium tax credits, which significantly expanded coverage since 2021, will expire at the end of 2025 unless Congress acts, according to the TD Economics report. If they lapse, premium costs will rise across all states, with increases ranging from $360 to $1,860 a year per enrollee.

While Medicaid is likely a primary focus, DOGE is also expected to propose reductions in federal hiring and nondefense discretionary spending. However, these cuts may not meaningfully reduce the deficit. Hospitals and health systems should prepare for regulatory shifts that could reduce federal reimbursements and increase the financial burden on states.

Major overhauls to Medicaid would require congressional approval, which remains uncertain given the Republicans' slim House majority. With federal discretionary spending already low by historical standards, Medicaid and ACA-related programs are likely to face the most significant cuts under the new administration's cost-saving agenda.

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