The Kentucky Hospital Association argues the Senate version of what supporters call the “Big, Beautiful Bill” will force hospitals to close and endanger 20,000 jobs in the state. The association previously stood out among its peers supporting the reconciliation bill threatening to cut Medicaid.
They took particular umbrage with Senate changes that would limit state-directed payments, which close the gap between Medicaid and private insurer reimbursement rates. The Kentucky Hospital Association, which represents more than 100 hospitals and health care systems across the state, says limits on state-directed payments could close hospitals that already persist on slim margins.
Republican supporters of the bill previously cited the hospital association as evidence that the bill would not devastate rural healthcare in the state — most notably GOP Rep. Brett Guthrie who leads a House committee key to engineering the Medicaid cuts. The hospital association says it still supports the original House bill, but the Senate version is a bridge too far.
“Medicaid State Directed Payments, funded in part by a hospital provider tax, are keeping services and hospitals open in Kentucky,” the Kentucky Hospital Association said in a social media post. “Kentucky hospital operating margins are only 2 percent WITH these directed payments, and would fall to negative 7.4% without them.”
The plan to overhaul provider taxes — and thus directed payments — was already dealt a major blow when the Senate parliamentarian ruled the provision violates procedural rules.
Some other state groups said the House version of the bill would endanger rural health care in the state, including the Kentucky Rural Health Association and Kentucky Voices for Health. National health organizations also oppose the House bill, like the National Rural Health Association, the American Hospital Association and the Federation of American Hospitals.
The reconciliation is estimated to kick millions of people off Medicaid, causing concern for health care providers especially in rural areas of the state, like eastern Kentucky, a region especially dependent on the federal program. Along with its criticism of the House version, the National Rural Health Association says they have grave concerns with the Senate version of the bill.
“Legislation from the Senate Finance Committee proposes changes to Medicaid that will result in significant coverage losses, reduce access to care for rural patients, and threaten the viability of rural facilities,” the association said in a release.
A study out of the University of North Carolina’s Sheps Center for Health Services Research that Senate Democrats referenced in a letter to GOP leadership found that 35 rural hospitals in Kentucky — more than any other state in the nation — would be at-risk under the House-passed version of the bill. That was assessed based on hospital profitability, risk of financial distress compared to peer hospitals and the share of Medicaid patients served.
One in three Kentuckians are covered under Medicaid and KCHIP, and that proportion is even higher in some parts of the state. Medicaid is the state’s single largest payer of health care.
After saying Wednesday that no university hospitals or the Kentucky Hospital Association had expressed concerns with proposed Medicaid cuts, a spokesperson for Kentucky’s Senate President Robert Stivers from Manchester said Friday it’s premature to offer comment on a bill still in flux.
“The Senate President is closely monitoring the reconciliation bill and its potential impact to Kentucky,” Stivers said. “The potential for changes to the Medicaid Program by the federal government have been on the Kentucky General Assembly’s radar for months.”
Limiting state-directed payments
Intimately tied up with provider taxes, state directed payments attempt to close the gap between Medicaid reimbursements and private insurers. But the Senate bill would phase down those payments to Medicare levels instead.
It would also lower provider tax rates for Kentucky, which fund the state’s contribution to those directed payments. Dustin Pugel, policy director for the progressive Kentucky Center for Economic Policy, said that would affect ambulance and hospital reimbursement rates as well as the Supports for Community Living waiver program, which gives people with intellectual or developmental disabilities assistance to live as independently as possible within their community.
A large portion of Kentucky’s Medicaid budget overall is for these payments, to help hospitals that disproportionately care for Medicaid recipients become whole. In 2024, $4.4 billion out of the state’s $18.4 billion Medicaid budget went toward those payments.
“By the end of next fiscal year in Kentucky, state directed payments are going to make up around a quarter of all Medicaid spending. So it's lucrative,” Pugel said. “It's very reasonable that hospitals would be worried about losing that money, because that money gets baked into not only their operating margins, but also the types of services and the number of services that they provide.”
Reimbursement through directed payments are also based on a hospital’s quality metrics, like improving patient outcomes or decreasing return rates. Pugel said he could see arguments for stricter quality metrics, but said providers have reason to be worried about calls to totally scale back attempts to reach the reimbursement rates of private insurance companies.
The Kentucky Hospital Association said in their statement that it is a “value-based program,” not just based on the amount of taxes they pay in.
“The funds are vital because, without them, Medicaid payments fail to cover the actual costs of patient care,” the association said.
State government and politics reporting is supported in part by the Corporation for Public Broadcasting.
