Federal shutdown delays Medicaid payment approvals, health leaders say

No new Medicaid state-directed payments (SDPs) were expected for the duration of the federal government shutdown, health system leaders said.

 “We do not expect that CMS will be approving these additional grandfathering [SDP] programs during the shutdown,” Mike Marks, CFO of HCA Healthcare, said to investors. “We have reports that indicate the reviews between CMS and these states are active and those reviews continue during the shutdown.”

The last SDP approval was issued by CMS on Sept. 12, two weeks before the Oct. 1 start of the federal government shutdown. CMS did not respond to requests to clarify whether SDPs were suspended during the shutdown and CMS planning documents do not address them specifically.

Some policy watchers said consideration of SDP pre-prints may resume after CMS recently asked some staff to return during the shutdown to work on various initiatives, such as consideration of state applications for Rural Health Transformation Program funds.

SDPs that are still under CMS consideration and that include hospital funding, according to health system executives, include those from:

• Florida
• Nevada
• Georgia
• Virginia

Marks said a slate of high-profile SDP renewals shortly before the shutdown made him optimistic SDP approvals would resume quickly after the shutdown ends.

SDP approvals that came shortly before the shutdown and were highlighted on recent earnings calls by various for-profit health systems included:

• Tennessee
• Kansas
• Texas
• New Mexico
• District of Columbia

The shutdown halt in SDP approvals comes amid scheduled cuts to them in future years — and the provider taxes that fund their state matching share — included in the One Big Beautiful Bill Act (OBBBA) enacted in July.

The financial impact on health systems will vary widely. But Universal Health Systems (UHS) expected OBBBA — starting in FY28 — to cut $420 million to $470 million in annual net revenue.

In September, CMS signaled it will start rejecting SDP pre-prints from states if they fail to report and improve on quality data.

SDP impact

As of Sept. 5, CMS’s 2025 SDP approvals were provided for 27 state pre-prints that explicitly funded hospitals worth $39 billion in federal funds. For-profit health systems said SDP revenue has provided a large lift to their 2025 financial results.

For instance, HCA said revenue from new and expanded SDPs drove about half of the overall increase in net revenue per equivalent admission in third quarter compared to prior year. Officials said SDPs approved so far provided $250 million of the $450 million increase in its expected 2025 revenue.

Community Health Systems (CHS) said about one-third of its third quarter increase in net revenue per adjusted admission came from recently approved SDPs.

UHS reported that a recently approved SDP for the District of Columbia provided $90 million in new revenue. That added to the health system’s projected $1.3 billion in 2025 revenue from SDPs.

Tenet reported SDPs provided $346 million in revenue in the third quarter and $1.02 billion year-to-date for FY25.

ACA subsidies

Executives had wide-ranging views on the likelihood the COVID-era subsidies for ACA marketplace enrollees would be renewed by Congress. Democrats have blocked continued funding for the federal government over demands that Congress fund those subsides, which would cost about $35 billion annually.

“We’re not planning nor are we saying that we expect them to expire at this stage,” Saum Sutaria, MD, CEO of Tenet, said in an Oct. 28 investors call. “Much of what we are hearing is that it may take time, but a compromise will be achieved, [based on] our intelligence coming from Washington,” D.C.

Others were less certain about the subsidy outlook.

“As far as any predictions on how the exchange subsidy issue is to be resolved, I don’t think we have any particularly pressing insight into that and we’re watching how this develops in Congress along with everyone else,” Steve Filton, executive vice president and CFO for UHS.

ACA exchange patients comprised 6% to 6.5% of adjusted acute admissions for UHS. If the subsidies expire and ACA enrollments decrease as a consequence, the system projects a $50 million to $100 million revenue impact.

Filton said health system utilization for ACA marketplace patients mirrors that of the Medicaid population, which “tends to be emergency room-centric, as opposed to a lot of elective cases. So, we don’t think that there is this significant pull through impact [on surgical volumes].”

ACA marketplace patients were 8.4% of Tenet’s admissions but only 7% of total consolidated revenue in the quarter, which was consistent in recent years.

Tenet’s Sutaria agreed his system’s large ambulatory surgery center unit had much less exposure to ACA enrollees than its hospitals did.

“The reason for that we said is we typically see the exchange business, especially newer exchange members, behaving with consumption patterns that are more similar, for example, to Medicaid,” he said.

HCA’s Marks cited health plans’ expectations that congressional approval of renewal of the subsidies will be accompanied by a special enrollment period in 2025, which would include lower prices that take the subsidies into account. HCA and Tenet have planned to provide additional resources to help patients find enrollment options, executives said.

However, if the subsidies expire and ACA enrollments decrease, Marks still expects the system to continue its 18-quarter streak of increasing patient volumes, mainly because it is located in growing markets and is expanding capacity.

Other policy impacts

Kevin Hammons president and interim CEO for CHS, said the system is seeing fewer ED visits — mainly uncompensated care — from immigrants “staying away.”

He said that volume shift likely stemmed from the Trump administration’s aggressive immigration law enforcement.

“Some of that volume we’re seeing, or lost volume, particularly in the ER, is uncompensated care, and so that has not had a negative EBITDA effect on us,” Hammons said.

The Trump administration has also increased the federal push on hospital and health plan price transparency.

Filton of UHS said his system has had some of its best success at obtaining above-average rate increases from payers by using price transparency data to ensure they are not paid less than competitors in various markets.