The Centers for Medicare and Medicaid Services has signaled plans to make cuts to the Medicaid program, saying it wants to put an end to "mounting expenditures," such as housekeeping for non-Medicaid-eligible individuals, and high-speed internet for rural healthcare providers.
CMS sent a letter to states on Thursday notifying them that it does not intend to approve new requests, or extend existing requests, for federal matching funds for state expenditures on designated state health programs (DSHP) and designated state investment programs (DSIP).
According to CMS, DSHPs and DSIPs are state-funded health programs that would not have qualified for federal Medicaid funding without "creative interpretations" of section 1115 demonstration authority.
WHAT'S THE IMPACT
The groundwork for these cuts was laid last week, when the Senate passed a budget blueprint that is expected to include cuts to Medicaid. The House of Representatives voted narrowly to move forward with the budget in a 216-214 vote.
However, according to The Hill, Senate Republicans are deeply divided by their House colleagues' demands to cut about $1.5 billion from the federal budget over the next 10 years. House Speaker Mike Johnson, R-La., maintained that GOP leaders are committed to cutting government programs, but Senate Majority Leader John Thune, R-S.D., said the GOP is divided over how much to cut.
In the run-up to budget reconciliation, a Senate amendment to a House budget resolution included an order to the House Energy and Commerce Committee to cut at least $880 million in spending. The cuts would be expected to target Medicaid, as the Energy and Commerce Committee has primary jurisdiction over that program. The Congressional Budget Office has indicated that the $880 billion target could not be reached without slashing Medicaid.
CMS said this week that federal DSHP funding has historically raised oversight concerns from Congressional oversight committees and the Government Accountability Office (GAO) about whether DSHPs were linked to eligible populations, and aligned with the federal-state financial partnership established under the Medicaid statute.
The agency cited action it took in 2017, under Trump's first administration, noting "demonstrations have not made a compelling case that federal DSHP funding is necessary to support the continuation of important programs previously operated by the state, and federal DSHP funding is inconsistent with the overall federal-state financial relationship under the Medicaid statute."
CMS said that DSHPs and DSIPs have grown from approximately $886 million in 2019 to nearly $2.7 billion in eligible expenditures in 2025, "representing increasing costs to the federal government without a sustainable state contribution."
CMS singled out several programs it said do not tie directly into services provided to Medicaid beneficiaries, including $11 million in grants to a labor union in New York to reduce costs of health insurance for certain childcare providers; $241 million for a program in New York for nonmedical in-home services, such as housekeeping; $17 million for a California student loan repayment program; $20 million in grants to high-speed internet for rural healthcare providers in North Carolina; and $3.8 million for a diversity in medicine initiative in New York.
THE LARGER TREND
In February, the American Hospital warned against cuts to healthcare programs, citing beneficiary need and population health concerns.
"The American Hospital Association urges Congress to take seriously the impact of reductions in healthcare programs, particularly Medicaid," AHA President and CEO Rick Pollack said at the time. "While some have suggested dramatic reductions in the Medicaid program as part of a reconciliation vehicle, we would urge Congress to reject that approach. Medicaid provides healthcare to many of our most vulnerable populations, including pregnant women, children, the elderly, disabled and many of our working class."
Jeff Lagasse is editor of Healthcare Finance News.
Email: jlagasse@himss.org
Healthcare Finance News is a HIMSS Media publication.