Va. hospitals predict $31B reduction in state's Medicaid funding if proposed CMS rule passes

A bed in Lee County Community Hospital. (Photo by Charlotte Rene Woods/Virginia Mercury)

A proposed federal rule stemming from the reconciliation bill Congress passed last summer includes additional policy changes that would reduce Medicaid payments to healthcare facilities, a step hospital chains warn exceeds the provision Congress approved and President Donald Trump signed.

Public comment closed this week on a rule proposed by the Centers for Medicare and Medicaid Services that the Virginia Hospital and Healthcare Association calls "deeply troubling" because it could trigger a $31 billion reduction in Medicaid spending in the state over the next decade.

"As written, it goes well beyond the statutory language of H.R. 1 by imposing deeper funding cuts and more restrictive policy provisions than what Congress established in the law," VHHA spokesman Julian Walker said.

What the proposed rule would do

Adjustments to Medicaid and how providers are reimbursed for it are set to take effect in 2027, 2028 and 2029. These changes were approved in H.R. 1, first dubbed the One Big Beautiful Bill Act and later rebranded as the Working Families and Tax Cuts Act.

The law prescribes caps to what are called state-directed payments but the proposed CMS rule includes additional policy changes to align Medicaid payment rates more closely with Medicare rates.

The proposed rule would also limit supplemental payment arrangements outside of typical Medicaid managed care organizations.

Georgetown University professor Edwin Park said regulatory matters like the proposed rule often attract less attention than legislative debates. It's why he believes "CMS has taken this as an opportunity to make the cuts harsher."

The suggestions in the rule stem from a June 2025 presidential memo wherein Trump directed federal agencies to curb Medicaid payments that exceed Medicare rates where possible.

Trump wrote that growth in state-directed payments "threatens the Federal Treasury and Medicaid's long-term stability."

CMS administrator Dr. Mehmet Oz emphasized in a press release announcing the proposed rule that the changes are about "ensuring taxpayer dollars support patients, not payment schemes."

The sentiment echoes Trump's statements that social service programs like Medicaid are rampant with "waste, fraud and abuse."

The administration has also withheld Medicaid funding from California and Minnesota over allegations of abuse and revoked money meant for Hawaii's Medicaid fraud unit due to its lack of prosecutions in recent years.

Virginia's Medicaid Fraud Control Unit, housed under the Office of the Attorney General, investigates and prosecutes allegations and instances of abuse each year.

Of nearly 7,000 fraud investigations last year, 11% were substantiated, according to a Department of Social Services report.

To cut money that supports catching and correcting abuse, Park said, is "counterintuitive."

Healthcare professionals, members of the public say rule risks cuts to essential services

By targeting state directed payments, hospital associations suggest the federal government may negatively affect the people programs like Medicaid are designed to protect.

Walker called state directed payments a "well-established tool" that helps hospitals bridge the gap between "often inadequate Medicaid reimbursement rates and the actual cost of delivering care."

Walker said if the rule takes effect, Virginia could see more than $31 billion in Medicaid funding reductions over a decade.

ER visits by uninsured patients in Virginia hospitals spiked by 8% last year

"Essential hospital services including emergency care, behavioral health treatment, and labor and delivery, among others, would be more difficult to maintain under the level of cuts contemplated in the proposed rule," he said.

Hospitals and clinics have already been trimming services over the past year, some partially due to longstanding rural healthcare challenges, while several others statewide specified H.R. 1 as a contributing factor.

CMS rule proposals undergo public comment periods, and this one has fielded about 5,500 comments from around the country. Several hundred have been posted in a public online portal that closed Tuesday.

Some people asked logistics questions about how the rule would apply, while many expressed opposition to the proposal.

Most commenters did not identify themselves on the public portal but New Mexico resident and clinical social worker Ann Schlabach emphasized how Medicaid helps people stay on top of their health with preventative care that ultimately saves taxpayers money.

"The cost of early treatment is less than emergency treatment later," she wrote. "Medicaid is the smarter choice."

Another commenter urged CMS to not adopt the change "unless you acknowledge your intent is to make Americans unhealthy or cause massive preventable deaths."

Virginia leaders address federal healthcare shifts, proposed rule

Virginia Gov. Abigail Spanberger speaks during a roundtable with healthcare organizations on July 7, 2026. (Photo by Charlotte Rene Woods/Virginia Mercury)

While Virginia officials monitor the pending CMS rule, they are already at work implementing H.R. 1 compliance and addressing the impact of other federal healthcare funding shifts.

State lawmakers earmarked $135 million in the latest state budget to support administrative work to help keep eligible Medicaid beneficiaries on the rolls and approved about $150 million for a state-level version of federal Affordable Care Act subsidies that Congress let expire earlier this year.

Social service departments have also inherited former Gov. Glenn Youngkin's blueprint for reducing the state's SNAP error rate — which is when recipients are over or underpaid due to paperwork mistakes or outdated information.

The state was also awarded a $189 million Rural Health Transformation Fund grant, secured by Youngkin's administration.

Even with these investments, Health and Human Resources Secretary Marvin Figueroa still cautioned thatH.R.1 and the proposed CMS rule could "make it harder" for providers to maintain services and patients to keep coverage.

"I hope that CMS will work with us to avoid unnecessary complexities within this already complicated process and preserve the flexibility needed to protect Virginians' access to healthcare," Figueroa said.

For states or other entities that might seek to delay or block the CMS rule, Park said litigation could be a path or members of Congress could seek action. A regulatory shift in a federal drug pricing program proposed by Trump was blocked by courts.

Figueroa and Gov. Abigail Spanberger have been participating in roundtable discussions with representatives of hospitals, free clinics, health centers, insurance companies, and philanthropic groups to hear more about hurdles and brainstorm solutions.

"We are trying to take every action possible, a laundry list of actions," Spanberger said in an interview last week.

With public comment closed, Park said the CMS rule is not official just yet.

"Even on a sort of fast track, it's still several months usually before a rule gets finalized," he said.

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Courtesy of Virginia Mercury