Medicaid payment delays are forcing some U.S. hospitals to cut costs, impacting staffing and supplier payments.
CMS is slow in processing state-directed payment applications, causing financial strain on hospitals.
Hospitals rely on these payments to offset underfunding, crucial for maintaining services.
Unexpected delays in billions of dollars of supplemental Medicaid payments have forced some hospitals across the country to cut costs including laying off staff and pausing payments to medical suppliers.
Hospital associations in at least 10 states said the Centers for Medicare and Medicaid Services, the federal agency responsible for approving funds known as state-directed payments, has been unusually slow at processing applications for them. Some of the delays date to the fall of 2024.
“There are tens of millions of dollars a month not coming to hospitals. They are depleting their cash reserves,” said Hilton Raethel, CEO of the Healthcare Association of Hawaii, which represents all 28 hospitals in the state. Hawaii’s 19 private hospitals are awaiting about $240 million in funds, which they had expected at the beginning of the year, Raethel said.
CMS didn’t approve any applications for state-directed payment programs between Jan. 17 and late February, according to its website. It has since approved a handful of applications. Hospitals still waiting for a decision from CMS said the recent approvals give them hope that funds will start flowing again.
The emergency entrance to Tucson Medical Center, part of the TMC Health system, in Tucson, Ariz. Photo: Cheney Orr/Bloomberg News
CMS said it has seen a substantial increase in the volume of applications for the payment programs. It has received “more than 150 since late 2024 compared to just four in entire years past,” a spokesperson said.
This surge, combined with new federal standards finalized in a May 2024 rule that strengthened federal oversight, “has extended review timelines as CMS works closely with states to ensure compliance with updated requirements,” the spokesperson said, adding that communications were temporarily delayed during the administration transition.
“CMS continues to process applications and issue approvals in accordance with the law,” the spokesperson said.
State-directed payments can help boost Medicaid funds to hospitals and other healthcare providers, many of which operate at a loss. Base payments for Medicaid are, on average, below hospitals’ costs of providing services to enrollees. Hospitals say these supplemental funds can raise payment rates for Medicaid to levels comparable with Medicare or even average commercial insurance rates, and are lifelines that help mitigate slim or negative margins and underpayment for Medicaid. Congress is weighing steep cuts to Medicaid, including possible changes to these payment programs.
