Doctors and hospitals to see lower Medicaid payments in three dozen states

A Health Affairs analysis finds that new federal limits on Medicaid ‘state-directed payments’ will force roughly three dozen states to cut annual provider payments by more than $50 billion combined, with the 17 highest-reimbursement states facing cuts of 10% to 25% of their Medicaid budgets. The provision, part of the tax and spending law President Trump signed in July 2025, requires states to ratchet down reimbursement rates each year starting in 2028 until they hit 100% or 110% of Medicare rates.

State-directed payments were created in 2016 to help close the gap between what Medicaid pays and what private insurers pay, and spending on them exploded from $27 billion in 2020 to an estimated $143 billion in 2025. Report author Debra Lipson warns the new caps will widen the payment gap again, likely pushing hospitals and nursing homes to limit how many Medicaid patients they accept, or to shift costs onto commercially insured patients instead.

Nebraska, Louisiana, South Carolina, Iowa, Nevada, Arizona, Kentucky, New Mexico, Illinois, Tennessee, Florida, Georgia, North Carolina, Michigan and Mississippi face the steepest cuts, having spent more than 20% of their fiscal 2024 Medicaid budgets on these payments.

The full dispatch is available from the source below.