‘They’ll get over it,’ McConnell reportedly assures GOP colleagues about Medicaid cuts

When the U.S. House last month approved cutting Medicaid by $793 billion over the next 10 years, the Kentucky Hospital Association issued a surprisingly upbeat statement thanking the Kentucky Republicans who voted for the legislation, especially Rep. Brett Guthrie of Bowling Green.

Guthrie had used his clout as chairman of the House Energy and Commerce Committee to protect a Medicaid funding stream that Kentucky hospitals say is critical to their survival.

That funding stream now is at risk in the U.S. Senate, which is proposing even steeper cuts than the House to the federal-state program that pays for 1 in 3 Kentuckians’ health care.

If proposals from the Senate Finance Committee become law, “you’ll have hospitals closed, services eliminated and 20,000 jobs eliminated” in Kentucky, warns Nancy Galvagni, president and CEO of the Kentucky Hospital Association. 

“We’re encouraging our senators to support the House language on state directed payments,” Galvagni said Tuesday in an interview.

While Republican senators from some states are voicing worries similar to those of Kentucky hospitals, Kentucky Sen. Mitch McConnell had a different message for Senate Republicans in a closed meeting Tuesday, reports Punchbowl News.

“I know a lot of us are hearing from people back home about Medicaid. But they’ll get over it,” McConnell was reported as saying.

Punchbowl reports that during the closed meeting, Sen. Thom Tillis, a Republican from North Carolina, raised concerns about Senate-proposed changes to the provider tax that helps support hospitals caring for large numbers of Medicaid patients. Tillis warned that provisions in the mega-bill that Republican leaders hope to approve by July 4 could result in GOP electoral losses similar to those suffered by Democrats after passage of Obamacare.

A spokesperson for McConnell, the former Senate Republican leader, told the Lantern: “Senator McConnell was speaking about the people who are abusing Medicaid — the able-bodied Americans who should be working — and the need to withstand Democrats’ scare tactics when it comes to Medicaid. Senator McConnell was urging his fellow members to highlight that message to our constituents and remind them that we should all be against waste, fraud, and abuse while working to protect our rural hospitals and have safety nets in place for people that need it.”

Sen. Rand Paul’s office did not immediately respond to an emailed request for comment.

35 Kentucky hospitals considered at risk of closing

At issue is a tax that Kentucky and other states collect from health care providers and use to supplement Medicaid payments. The goal is to boost what hospitals are paid for treating low-income Medicaid patients closer to what commercial insurers would pay for the same services. 

These state-directed payments pumped $4.5 billion into Kentucky hospitals in fiscal year 2024 and are expected to reach $5.5 billion by 2026. That’s a quarter of the entire Kentucky Medicaid budget.

Even with that supplemental support, many Kentucky hospitals are operating on perilously thin margins; without it, they would lose money, Galvagni told the Lantern Tuesday. 

The hospital association commissioned a study that found Kentucky hospitals on average are operating on a 2% margin that would drop into negative numbers —  negative 7.4% — if what’s proposed in the Senate is approved, she said.

Researchers at the University of North Carolina recently analyzed hospitals’ operating margins and their dependence on Medicaid payments and identified 338 hospitals that would be most at risk of shutting down as a result of the Medicaid cuts Congress is considering.

Thirty-five of the hospitals identified as most at risk of closing are in Kentucky — more than any other state. (See list at bottom of story.)

The House plan protects the status quo in Kentucky by freezing state provider taxes at current levels and grandfathering in existing plans for supplementing Medicaid reimbursements through state directed payments. Kentucky has three state directed payments plans — one for the state’s two teaching hospitals at the University of Kentucky and the University of Louisville, one for all the other hospitals and a small plan for ambulance services.

The Kentucky plans, approved by the first Trump administration in 2020, tie supplemental funding for hospitals to quality measures intended to improve care. Galvagni said the financial incentives are driving improvements including reductions in infection rates, readmissions and opioid prescribing.

Gaming the system?

But the current Trump administration accuses its predecessors in the Biden administration of allowing states and health care providers to “game the system” via provider taxes to tap additional federal funds to boost Medicaid payments.

Medicaid covers people who have low incomes or disabilities including working people who can’t afford or don’t have access to employer-provided health insurance. It is funded jointly by states and the federal government with most of the money coming from Washington. 

Dr. Mehmet Oz, Trump’s Medicare and Medicaid administrator, described provider taxes and state directed payments as “legalized money laundering” in a recent Capitol briefing, reports The Hill. 

A June 6 White House memorandum says: “These State Directed Payments have rapidly accelerated, quadrupling in magnitude over the last 4 years and reaching $110 billion in 2024 alone,” threatening “the Federal Treasury and Medicaid’s long-term stability.”

GOP leaders in US Senate struggle to lessen pain of Medicaid cuts for rural hospitals

The memo orders Health and Human Services Secretary Robert F. Kennedy Jr. “to eliminate waste, fraud, and abuse in Medicaid, including by ensuring Medicaid payments rates are not higher than Medicare, to the extent permitted by applicable law.” 

The Senate proposal would reduce Medicaid’s state directed payments to hospitals by 10% each year until they reach the allowable Medicare-related payment limit.

Republicans in Congress are looking to cut federal spending in order make tax cuts from the first Trump administration permanent. Even with the cuts to health care and nutrition programs, and taking into account economic growth from the tax cuts, the House bill is projected to increase the national debt by $2.8 trillion over 10 years, or about $3.4 trillion if the full costs of federal borrowing are included, according to the Congressional Budget Office.

The Congressional Budget Office also estimates that the House bill would cost the poorest Americans roughly $1,600 a year while increasing the income of the wealthiest households by an average of $12,000 annually

Both Medicaid and Medicare rates are low in Kentucky

Galvagni said pegging the Medicaid supplement to Medicare rates, as the Senate committee proposes, would be “extremely damaging to Kentucky” and put many Kentucky hospitals into an even more unsustainable financial position because Medicare rates in Kentucky are almost as low as Medicaid rates. “You can’t pay the hospitals less than what it costs to deliver services,” Galvagni said, and not expect some to close and others to reduce services.

Medicare is a federally funded program that mainly covers people age 65 and over.

Galvagni also disputed suggestions that Kentucky is abusing the provider tax. All hospitals pay the same rate, she said, and the amount of tax they pay is not related to the amount of money they receive from Medicaid.

In the U.S. Senate, Republicans Jim Justice of West Virginia and Josh Hawley of Missouri have publicly voiced surprise and alarm at the cuts to provider taxes and Medicaid payments proposed by the Finance Committee.

Sen. Susan Collins, Republican of Maine, has proposed creating a fund for rural hospitals, which seems to have gained some traction in the Senate. “Not helpful” was Galvagni’s assessment of such a fund. “We appreciate the intent,” she added.

Provisions in the House bill would cause an estimated 277,000 Kentuckians to lose their Medicaid coverage, according to KFF, which says that number could go as high as 346,000. 

Republicans in Congress also are expected to let tax credits expire that help Americans afford health insurance in the Affordable Care Act marketplace. Without the tax credits the number of uninsured Kentuckians is projected to rise by 21%, according to The Urban Institute.

McKenna Horsley contributed to this story.