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Medicaid Needs Direct Funding to Providers and More Federal Funds for States

Many health care providers serving Medicaid enrollees are struggling due to lower revenue from patient visits and higher costs for personal protective equipment and other pandemic-related measures. Many Medicaid providers should soon receive help from a $175 billion provider relief fund in the CARES Act of March. But while the just-announced fund allocations should help providers weather their immediate challenges, they won’t prevent Medicaid cuts as states cope with massive budget shortfalls — cuts that will harm both beneficiaries and providers. The best way to prevent these cuts and protect beneficiaries and providers is to increase the federal share of Medicaid costs (the federal medical assistance percentage, or FMAP).

Federal policymakers have provided substantial funding for a provider relief fund to address providers’ lower revenue and higher costs due to the pandemic: $100 billion in the CARES Act and another $75 billion in the Paycheck Protection Program and Health Care Enhancement Act of April. To date, most fund distributions have gone to Medicare providers (mostly hospitals) and haven’t addressed the needs of many providers who serve large numbers of Medicaid and uninsured patients, as the Medicaid and CHIP Payment and Access Commission, the National Association of Medicaid Directors, the American Medical Association, behavioral health providers, and Finance and Energy and Commerce Committee chairs and ranking members noted in urging the Trump Administration to get funds to Medicaid providers.

The formula for the largest distributions, totaling $50 billion, favored Medicare providers with the highest share of private insurance revenue as a percentage of their net patient revenue, with those in the top 10 percent receiving more than twice what hospitals in the bottom 10 percent received, according to the Kaiser Family Foundation. These hospitals are more likely to be for-profit and provide less uncompensated care as a share of their operating expenses. Children’s hospitals and hospitals serving a large share of Medicaid beneficiaries and uninsured people have been disadvantaged by a formula that relies on Medicare and commercial revenue to make distributions.

Even more significant, community-based Medicaid providers — including behavioral health providers, pediatricians and maternal health providers, oral health providers, home- and community-based services providers, and school-based health clinics — have largely been left out of fund distributions. Some behavioral health providers have already had to close parts of their operations, and many physician practices are struggling.

Medicaid providers that haven’t received funding in earlier distributions can now apply for a share of $15 billion from the fund and are supposed to receive at least 2 percent of their annual revenue when the Department of Health and Human Services (HHS) starts making distributions in the coming weeks. HHS estimates that close to a million providers are eligible for funding so, if all apply, the funding may not be enough to meet the 2-percent-of-annual-revenue target.

HHS will also distribute $10 billion to safety net hospitals that serve disproportionate numbers of Medicaid beneficiaries and provide large amounts of uncompensated care. Hospitals meeting HHS criteria will receive between $5 million and $50 million.

Fund distributions should help Medicaid providers recoup some of their lost revenue from COVID-19, as office visits have declined and will continue to do so due to the ongoing need for social distancing and deferral of non-emergency care. The funds should also help them pay for protective equipment and cover other pandemic-related costs.

But, though much-needed, these one-time funds for Medicaid providers won’t address increased state Medicaid costs due to the pandemic; nor will the funds help states address their budget shortfalls. That means that the funds won’t protect beneficiaries or providers from the cuts that lie ahead if states don’t get more federal help.

COVID-19 is putting a huge strain on state budgets, with state shortfalls likely totaling several hundreds of billions over three years. Without additional federal funds, states will be hard-pressed to maintain their current programs, let alone meet the growing demand for Medicaid coverage from newly unemployed people who lost their health coverage and states’ increased health care costs due to COVID-19. Some states are already cutting their Medicaid budgets, and others will likely follow in the coming months.

Increasing state FMAPs would free up state funds that the states otherwise would use to cover Medicaid costs and would discourage Medicaid cuts by reducing state per-dollar costs of total Medicaid funding. Without these increased federal funds, states will likely cut provider payments deeply over the coming months — as they did during prior state budget crises — which will undercut the goals of helping providers stay afloat and enabling beneficiaries to maintain access to Medicaid. Without increased federal funds, state policies to respond to COVID-19, including increased support for home- and community-based services to keep people out of nursing homes and streamlined procedures to enable people to enroll more easily, are also at risk of ending.

The 6.2 percentage-point increase in federal Medicaid funds in the Families First Act of March falls short of what’s needed to avoid cuts, because it’s too small and will end when the public health emergency ends — which could be well before the economic downturn ends. The House-passed Heroes Act would help by increasing state FMAPs by 14 percentage points from July 1, 2020 through June 30, 2021.

Without both increased FMAPs and sufficient and well-targeted distributions from the provider funds, Medicaid providers are at risk. That, in turn, risks harm to Medicaid beneficiaries who, in the end, may have less access to care.