Hospitals that serve high volumes of Medicaid patients are voicing concern over a proposed rollback of a Medicaid payment policy enacted during President Donald Trump’s first term in the White House.
The policy, implemented by the Trump administration in 2018, allows states greater flexibility in setting Medicaid payment rates through state-directed payment programs — supplemental funding mechanisms jointly supported by state and federal governments. These programs have become critical for hospitals, especially those in rural or underserved communities, helping to bridge the gap between Medicaid reimbursements and the actual cost of care.
According to the Medicaid and CHIP Payment and Access Commission, SDP adoption has grown rapidly, with the number of participating states increasing from 10 in 2017 to 40 in 2024. Approved programs were projected to disburse $110 billion annually, marking a nearly 60% year-over-year increase.
Now, the Trump administration aims to walk back this policy, citing concerns about escalating Medicaid spending and improper financial structuring at the state level. In a June 6 statement, the president criticized current SDP practices as a “gimmick” that allows states to tax providers and redirect those funds as Medicaid payments — unlocking additional federal contributions in the process.
“These state directed payments have rapidly accelerated… and threaten the Federal Treasury and Medicaid’s long-term stability,” President Trump said in a June 6 statement. He directed HHS to take action aimed at curbing “waste, fraud, and abuse” in the Medicaid program, including ensuring that Medicaid payment rates do not exceed those of Medicare.
America’s Essential Hospitals, which represents the nation’s safety-net providers, is pushing back strongly on the proposed reversal. The organization cited 2022 data showing that essential hospitals incurred $22.7 billion in uncompensated care costs, including $10.3 billion in unpaid Medicaid-related care.
“State directed payments help states close these gaps in Medicaid payment between Medicaid and other payers,” Beth Feldpush, DrPH, AEH’s senior vice president of policy and advocacy, said in a June 10 statement. “Many SDPs approved by the first Trump administration have allowed states to keep rural hospitals open; reduce infant and maternal mortality; and improve care quality, value, and access in other ways. These programs could be eliminated by this proposed policy reversal.”
Nearly 12 million Americans are dually enrolled in Medicare and Medicaid. AEH argues that adequate Medicaid payments are essential not just for these patients, but for maintaining access across entire communities — especially for services that Medicare does not typically cover, such as maternity care.
“Allowing states flexibility to set Medicaid payment policies in response to local needs is particularly important for services that Medicare doesn’t often cover, such as maternity care,” Dr. Feldpush said. “These programs could be eliminated by this proposed policy reversal.”
Even before the proposed rollback, hospitals in at least 10 states reported significant delays in receiving Medicaid supplemental payments. In some cases, the delays date back to fall 2024. Some hospitals have had to pause service expansions, delay vendor payments, or tap into cash reserves to remain operational.
While CMS formally established SDPs in 2016, their widespread use has surged over the past several years — becoming a financial lifeline for hospitals facing persistent underpayment for Medicaid services. Hospital leaders argue that eliminating or scaling back these programs would widen the reimbursement gap, putting access to care at risk for millions of patients, particularly in rural and underserved areas.
Essential hospitals say they’re willing to engage in dialogue with policymakers but emphasize that reforms must be data-driven and aligned with the real-world economics of safety-net care.
“Essential hospitals look forward to working with the administration to identify data-driven ways to advance the president’s goal to ‘love and cherish Medicaid’ and protect access to care for Medicaid beneficiaries.” Dr. Feldpush said.
