Senate Republicans Mull Rescue Fund for Rural Hospitals Facing Medicaid Cuts
In the midst of ongoing conflict inside the Senate Republican caucus over the 2026 federal budget bill that passed the House of Representatives on May 22, some Senate Republicans are working on a proposal that would create some kind of rescue fund for the rural hospitals that might otherwise be devastated by the planned cuts to Medicaid that the Republicans are also working on.
As POLITICO’s Jordan Carney explained it on Monday afternoon, June 23, “Senate Republicans are expected to include a fund to help rural hospitals that could be impacted by Medicaid changes, according to two people granted anonymity to discuss a yet-to-be-released bill. The fund spawns from discussions that started last week between leadership, Finance Chair Mike Crapo (R-Idaho) and key ‘Medicaid moderates,’ who have raised concerns about the tax writing panel’s decision to curtail the provider tax. Many states use the tax to fund their Medicaid programs. Negotiations on the bill’s Medicaid and provider tax language are ongoing — so the fund, and its inclusion, could change up until the bill’s release. Full text was initially expected to come Monday, but that has slipped amid ongoing negotiations and work with the Senate’s parliamentarian,” Carney explained.
But, Carney added, “It’s far from certain that inclusion of a rural hospital fund would be enough to assuage some of the senators with the biggest concerns about the Senate’s provider tax language. Unlike the House bill, which just froze the tax, the Senate’s language incrementally curtails it in states that expanded Medicaid under the Affordable Care Act.”
Meanwhile, on June 20, Roll Call’s Sandhya Raman and Jessie Hellmann put it this way: “Senate Republicans say they are looking for ways to safeguard rural hospitals from proposed cuts to a key Medicaid funding method, amid concerns from the powerful hospital lobby and others that the budget reconciliation bill could force many facilities to close. The draft text that the Senate Finance Committee released this week reduces the ability of states who expanded Medicaid under the 2010 health care law to levy taxes on providers to fund their programs,” they wrote.
“Senate Majority Leader John Thune, R-S.D., told reporters Wednesday he is working on the issue, though he did not offer details,” Raman and Hellman reported. “Leadership is attempting to balance directives to cut government spending with demands from senators like Josh Hawley, R-Mo., who said that the bill should protect rural hospitals from the effects of shrinking provider taxes. And they quoted Sen. Hawley as stating that “The right thing to do is not defund rural hospitals to pay for your pet projects. So if you want your pet project in the bill, go find your own money. Don’t defund rural hospitals.”
As Raman and Hellmann noted, “States can levy taxes on hospitals, nursing homes and other providers to fund their share of Medicaid spending. The Finance Committee’s proposal would cap provider taxes for states that expanded Medicaid at 3.5 percent, down from the current 6 percent. Conservatives have derided federal government matching of the provider taxes as ‘legalized money laundering,’ saying states should instead put up their own money. That would likely mean states have to find money elsewhere or start cutting benefits or provider reimbursement rates,” they noted.
The risk of rural hospital closures is one that has been warned of for years, but the federal budget bill could push many facilities over the edge. Leaders at the Pittsburgh-based Center for Healthcare Quality & Payment Reform warned back in April that “More than 700 rural hospitals – one-third of all rural hospitals in the country – are at risk of closing because of the serious financial problems they are experiencing. Over 300 of these rural hospitals are at immediate risk of closing because of the severity of their financial problems.” They noted that “ Almost half of the rural hospitals in the country lose money delivering patient services. It costs more to deliver health care in small rural communities than in urban areas, and many health insurance plans do not pay enough to cover these costs.” Further, they noted, “Many hospitals have managed to remain open despite losses on patient services because they receive local tax revenues or government grants. However, there is no guarantee that these funds will continue to be available in the future or that they will be sufficient to cover higher costs. The special federal assistance many hospitals received during the pandemic has now ended. As a result, more than onethird of rural hospitals lost money overall in 2023-24.”
All of this is creating headaches for those members of the Senate Republican Caucus determined to enact deep cuts to the Medicaid program, as Jonathan Cohn noted in a June 17 article in The Bulwark. Cohn quoted Craig Kennedy, CEO of Medicaid Health Plans of America, who told him that “The Senate goes beyond the House bill, cutting state directed payments and provider taxes, which would dramatically increase the financial burden on states and likely result in cuts to essential benefits and damage to the broader health care ecosystem.”
Cohn noted that “Sen. Rick Scott, R-Fla., floated a two-tier solution that would decrease the federal government’s share of spending on the Medicaid expansion population and establish a rainy-day fund for some hospitals. The Centers for Medicare and Medicaid Services could tap into the fund at its discretion to bolster rural, teaching and other vulnerable hospitals. Scott said the federal match for Medicaid expansion enrollees could be phased down over two years, after which states would get the same match rate as traditional Medicaid states for new expansion enrollees. The federal government pays about 90 percent of the costs for Medicaid expansion, and a minimum of 50 percent of the costs for traditional enrollees, though the percentage varies by state.”
Further, Cohn wrote, “In April, the left-leaning Center for American Progress released a report predicting 190 rural hospitals could close because of Medicaid cuts Republicans proposed. It was the first of many such warnings, including a report Democrats recently commissioned from the Sheps Center for Health Services Research. The researchers at Sheps, which is part of the University of North Carolina, broke down financially vulnerable hospitals by state. And as Democrats noted in a letter summarizing the findings, Alabama, Kentucky, Louisiana, and West Virginia are among the states that could suffer the most hospital losses.”
And, he noted, “Those are all states with Republican senators, which is surely why the Democrats highlighted them. And it’s fair to wonder whether predictions from a Democratic-aligned think tank or a study commissioned by Democratic senators might be painting a worst case scenario. But there’s no question that rural hospitals really are in a precarious spot already—or that they would struggle more, with community-wide effects, if they lose additional revenue because of the GOP’s planned Medicaid cuts.”
And he quoted Anthony Wright, executive director of FamiliesUSA, who told him that, “In your average maternity ward, or your average nursing home, or your average rural hospital, Medicaid is usually the primary payer, the biggest line in the budget. If that gets scaled back, that impacts everybody who goes there, regardless of whether they’re on Medicaid per se.”
This is a developing story. Healthcare Innovation will update readers as new developments emerge.
