Hospitals thought losing hundreds of billions in Medicaid funding through GOP-led cuts last year was bad. But coming regulations from the Trump administration could slash their funding even deeper than Congress did.
Two recently proposed rules from the Centers for Medicare and Medicaid Services would cost hospitals hundreds of billions of dollars more, hospital executives told POLITICO. The rules, which target taxes states use to get more federal Medicaid dollars — and which yield higher payments to hospitals — have prompted hospitals to launch another major lobbying blitz after record spending last year.
"Our core message to CMS is to stick to the statute. Congress cut enough," said Robert Nelb, director of policy at America's Essential Hospitals, which represents hospitals serving large Medicaid populations.
"There's no need to cut any more out of the Medicaid system at a time when the safety net is really struggling," Nelb added.
If the rules are finalized and they lose hundreds of billions on top of Congress' funding cuts, hospitals say they'll be forced to reduce services, lay off workers, consolidate operations or shutter entirely. Some systems are already doing so, telling POLITICO they've cut staff, ended contracts and slashed hospital beds in response to predicted losses.
States fund Medicaid by putting in some of their own money, which the federal government then matches. Congress cracked down on a practice in which states boost their federal matching funds by taxing hospitals to inflate the state portion of the Medicaid budget and then kick the money back to the hospitals in the form of higher payments.
Congress also restricted how states directed payments to certain providers, such as boosting payments for those in rural areas.
Hospitals say CMS' rules restricting state taxes and payments go further than what Congress intended.
Hospitals expected to lose $340 billion through 2034 after Congress passed the One Big, Beautiful Bill Act last year. If the rules are finalized as proposed, they would generate $756 billion in savings to the federal government and $265 billion in savings to states through 2035.
Or as hospitals see it, they're losing $681 billion more than they expected.
CMS said in a statement to POLITICO it will review comments for the rules before they are finalized. The agency has previously said the rule changes are necessary to rein in misused Medicaid dollars.
"Misaligned payment incentives and opaque financing arrangements are driving up costs without delivering better care," CMS Administrator Mehmet Oz said in a May press release.
It remains unclear when both rules will be finalized. The reductions to both the provider taxes and state-directed payments under the One Big, Beautiful Bill Act start in 2028 and will be phased in over several years.
The hit to hospitals, a large source of U.S. employment, arrives as the sector comes under attack from lawmakers, as well as from their rivals in the pharmaceutical and insurance industries, who blame them for Americans' high health care costs.
The proposed rules have opened up another rift between health providers and the Trump administration. In addition to Medicaid cuts, the Trump administration has cracked down on hospital reimbursement practices and withheld Medicaid funding to states over health care fraud concerns.
While harm to patients from the law and pending rules are so far largely hypothetical, hospitals say they're already making changes that could affect patient care.
"This is the most challenging economic time I've ever seen," said Craig Thompson, who leads Golden Valley Memorial Health Care, a hospital system in rural Missouri, as well as the state hospital association. Inflationary and Medicaid reimbursement pressures have already forced the hospital system to cut maternal beds in half last year.
Providence, a hospital system in the West, has begun cutting staff and supply contracts in response to what it predicts will be $1.3 billion in lost funding from how CMS implements the GOP cuts to Medicaid, up from an original $900 million estimate.
Some conservative groups, such as the think tank Paragon Health Institute, counter that these state taxes and insurance payments are akin to "money laundering" because they shift costs states have chosen to take on onto federal taxpayers. The tools can inflate Medicaid spending that is already out of control, conservatives argue.
Brian Blase, president and founder of Paragon, told POLITICO the combination of the One, Big Beautiful Bill Act and CMS' rules, "will make federal Medicaid support fairer across the states."
Blase added that hospital prices have skyrocketed, growing three times the rate of inflation and twice the rate of worker wages over the past 25 years. He pointed to a recent Paragon report on hospital pricing.
"Hospital productivity is very low and poorly designed government subsidy programs incentivize hospitals to be inefficient," he said. "Much of the recent growth is on overhead and not direct patient care."
Hospitals say they want to combat waste and fraud, but CMS is going too far.
"Everyone agrees Medicaid financing should be accountable," said Charlene MacDonald, president and CEO of the advocacy group Federation of American Hospitals.
"The real question is: Do states have the resources they need to address chronic underpayment in communities?"
Hospitals are fighting back, ramping up visits to Washington and hiring outside lobbyists. Lobbying registrations have jumped since CMS released the regulations in mid-May, with government affairs consultancy Baron Public Affairs tracking 13 registrations in July, up from five in June and four in May.
The Missouri Hospital Association spent $120,000 on lobbying in the second quarter, its highest quarterly spend since 2011, and Thompson has ramped up his visits to Washington from once a year to every other month following the One Big, Beautiful Bill Act's passage in an effort to reverse the Medicaid cuts.
Chris Mitchell, head of the Iowa Hospital Association, sees an opening after the midterms, when many lawmakers who never voted for the cuts will enter office, to convince CMS to update the rules.
"My guess is there's going to be a lot of individuals in Congress who didn't vote for this thing in the first place, and I see that as a real opportunity to continue these discussions."