Hospitals could lose millions under Trump plan to alter Medicaid funding formula

Mississippi hospitals will lose at least $500 million if the Department of Health and Human Services head obeys a memo President Donald Trump issued Friday, according to Richard Roberson, CEO of the Mississippi Hospital Association.

Trump's memo instructs U.S. Health and Human Services Secretary Robert F. Kennedy Jr. to gut a program that helps states finance public health care, calling it a "gimmick."

A presidential memorandum, while not as strong as an executive order, has significant power over government agencies and officials. Trump's memo comes as the president's mega-bill, involving deep cuts to Medicaid, moves through the U.S. Senate.

The finance mechanism in question is called a state directed payment, which allows states to beef up Medicaid reimbursement rates, which are typically the lowest among insurance payors. Historically, the mechanism has increased health care quality and access for Medicaid beneficiaries and has reimbursed hospitals at competitive rates for treating these patients, but has faced backlash from critics, with some calling it "a legalized form of money laundering."

The Mississippi Hospital Access Program (MHAP) is one such program. Republican Gov. Tate Reeves announced it weeks before his reelection in 2023 as a plan to help financially-struggling hospitals remain open.

The governor's office did not respond to Mississippi Today's request for comment about Trump's memo by the time of publication.

"These State Directed Payments have rapidly accelerated, quadrupling in magnitude over the last 4 years and reaching $110 billion in 2024 alone," Trump wrote in the memo. "This trajectory threatens the Federal Treasury and Medicaid's long-term stability, and the imbalance between Medicaid and Medicare patients threatens to jeopardize access to care for our seniors."

Hospital leaders, however, say that without these payments, or time to phase them out and replace them with viable solutions, rural and struggling hospitals face a level of instability that might be insurmountable.

"They can't budget from year to year or every six months based on whims that are coming out of Washington or Jackson," Roberson said. "And so just having some stability so that the models under which they get paid don't change allows them to know where they can pivot to as they're making decisions."

Many experts agree there should be more transparency around managed care organizations, the insurance companies that contract with Medicaid and that use state directed payments. But they also say a thoughtful and data-driven approach is necessary to progressive reform.

"I am certainly a fan, and have been for decades, of more transparency around payment arrangements," said Joan Alker, executive director of Georgetown University's Center for Children and Families. "This is not the right way to go about it, to be rushing through language that nobody understands in the middle of the night when it has life and death implications."

-- Article credit to Sophia Paffenroth for Mississippi Today