Feds greenlight $9 billion in supplemental Medicaid funds as GOP weighs new limits

STAT News – Friday, June 13, 2025
By Bob Herman

Hospitals, physician groups, and nursing homes across 15 states will receive billions of dollars in extra Medicaid funding this year thanks to federal health care officials signing off on new agreements.

In almost all of the new agreements, states will pay health care providers average commercial prices to treat Medicaid patients — a boon for providers that often decry Medicaid as one of their worst-paying insurers.

The influx of recently approved Medicaid funds, known as state directed payment arrangements, highlights how the industry and state leaders of all political stripes have tapped a lucrative well within Medicaid. And the race is on to get more agreements across the finish line before Congress or the White House intervenes.

Hospitals and other providers are hoping the federal government works through its backlog of Medicaid proposals because Republicans are considering capping the arrangements to help pay for their tax reform agenda. All Medicaid state directed payment programs that are approved before the tax bill is signed into law would be grandfathered, under the current plans crafted by the House, but any that come after would be worth a lot less.

The most recent proposal from congressional Republicans would limit new types of these arrangements to Medicare rates for providers in states that expanded Medicaid. For providers in states that didn’t expand Medicaid, these Medicaid arrangements would be capped at 110% of Medicare rates. The measure is expected to reduce federal Medicaid spending by about $72 billion over a decade.

The rates would be a significant step down from what was rolled out by the Biden administration, which allowed states to submit proposals that would pay providers commercial prices for Medicaid patients’ care. Commercial prices are twice as high as Medicare rates on average, and even higher when compared with Medicaid. That has helped fuel the growth in these arrangements, which now total at least $110 billion a year, according to the Medicaid and CHIP Payment and Access Commission.

President Trump has since targeted these Medicaid arrangements in an executive memo, calling for payments to be limited to Medicare levels. The administration also is evaluating new regulations on them.

STAT analyzed more than three dozen state directed payment arrangements that were approved by the Centers for Medicare and Medicaid Services in late April and May but weren’t made public until this week. The arrangements cover 15 states and Puerto Rico. Together, the programs account for more than $9 billion in new Medicaid funding for 2025 alone — a majority of which will be covered by federal taxpayers.

CMS did not respond to questions, including how many more of these Medicaid payment arrangements the agency is reviewing.

The programs are supposed to tie the supplemental payments to measures of quality, and several do. The new approvals also show they have become a land rush.

Some states won approval for programs that benefit specific hospitals. Ambulances, nursing homes, and physician practices affiliated with medical schools across several states also received new Medicaid payment rates that are on par with employer-based health insurance.

The biggest of the most recently approved state directed payment programs is Tennessee’s, which will shovel an extra $3.2 billion to hospitals and other providers this year. For-profit hospital chains like HCA Healthcare and Community Health Systems have said Tennessee’s Medicaid arrangement represents hundreds of millions of dollars in pre-tax profit.

Tennessee’s newly approved program would pay hospitals “average commercial rates with an intent to support future quality incentive payments,” Tennessee Medicaid officials wrote in documents to CMS.

“The state views this directed payment as a long-term investment,” the officials continued. “As this is the first year of the program, the state’s aim is to establish a quality infrastructure in the first year(s) in order to build out a more robust quality framework for future performance years.”

The federal government also approved four different Medicaid funding deals in Washington state that will pay hospitals an extra $2.7 billion this year. After raising payments to commercial rates, many hospitals can expect an extra $14,000 per discharge for a Medicaid patient, the filing shows.

The state’s premier academic medical center, the University of Washington Medicine, received its own special windfall. One of the newly approved programs authorizes $480 million for “hospitals owned and operated by a state university.” UW Medicine operates the only hospitals that meet the criteria.

Washington state officials “determined that ensuring that rates are commensurate with commercial payment rates will help promote access and equity, and supply the resources these hospitals need to provide high-quality care,” according to the new federal approval. UW Medicine generated more than $6 billion in revenue last year.

UW Medicine started receiving these supplemental Medicaid funds in 2023. Last year, the hospital system received $233 million under a prior arrangement, UW Medicine spokesperson Susan Gregg said. That means the new agreement more than doubles what the hospital system had gotten.

“These programs provide critical funding to our hospitals and help offset losses on care provided for Medicaid and uninsured patients,” Gregg said in a statement.

Nursing homes will be getting special higher payments as well. Four newly approved state programs will send enhanced Medicaid payments to nursing homes that are based on average commercial rates in their areas.

Federal officials signed off on a three-year Medicaid program in Texas that will steer an extra $1.75 billion per year to nursing homes and other providers who take care of Medicaid patients who are older than 65 or have disabilities. Illinois got approval for an extra $70 million this year, and the state will route more money to nursing homes that have higher star ratings from the federal government. Hawaii will earmark an extra $21 million this year for all nursing facilities throughout the state. Tennessee will get more than $41 million, with the state saying providers are still reeling from Covid-19.

“Due to the tremendous strain [Covid] had on Tennessee nursing facilities, the state has identified funds to support nursing facilities in their care of enrollees,” Tennessee officials wrote to federal officials.

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