Medicaid DSH payment cut again delayed in proposed federal funding bill (updated)

March 15 update: The bill has passed both chambers of Congress as originally drafted and described below.

Hospitals that receive Medicaid disproportionate share hospital (DSH) payments would get continued relief from a pending big cut, according to the latest proposed FY25 continuing resolution (CR).

A scheduled three-year, $24 billion reduction would be delayed through September instead of beginning April 1, according to the CR. The cut would still take place over three years, spanning federal FY26-28. The DSH payment reduction has been in the works since 2014 as an Affordable Care Act pay-for but repeatedly has been modified and delayed.

Passage of the CR is not considered certain before federal funding expires March 14, even though the House voted to pass the bill by a 217-213 vote on the afternoon of March 11 (with one Republican voting against and one Democrat voting in favor). In the Senate, the votes of at least seven Democrats will be needed to reach 60 and avoid a filibuster, and Democrats on the Appropriations Committee released a lengthy list of concerns about the bill.

On social media, President Donald Trump said March 10 he approved of the CR and urged all congressional Republicans to support it.

Notable healthcare provisions

Medicare payment extenders in the CR include supplementary payments for designated low-volume hospitals, Medicare-dependent hospitals and ground ambulances, along with funding related to quality-measurement activities by CMS.

Authorization for expanded coverage of telehealth and acute hospital care at home likewise would continue through September, maintaining waivers that have been in place since the pandemic.

Part D coverage of authorized oral antivirals for COVID-19 also would be extended, as would funding continuations for graduate medical education, community health centers, the National Health Service Corps and the Special Diabetes Programs.

No relief for physicians

Physician advocates had been hoping a 2.83% Medicare payment cut for 2025 would be mitigated in the CR. But like when Congress pushed through a three-month CR at the end of 2024, the cut would not be attended to, according to the latest text. Although the payment rate has fallen for five consecutive years, this is the first when Congress has not eased the reduction.

Not surprisingly, physician advocates sounded the alarm.

“Physicians across the country are outraged that Congress’s proposed spending package locks in a devastating fifth consecutive year of Medicare cuts, threatening access to care for 66 million Medicare patients,” Bruce Scott, MD, president of the American Medical Association, said in a written statement. “Despite repeated warnings, lawmakers are once again ignoring the dire consequences of these cuts and their impact both on patients and the private practices struggling to keep their doors open.”

The American Medical Group Association (AMGA), which represents multispecialty medical groups and integrated health systems, released survey results reflecting the toll of the 2025 cut. Among the 130 responding C-suite representatives, 40% said they eliminated services to Medicare patients, 31.3% furloughed or laid off nonclinical staff and 25% furloughed or laid off clinical staff. In addition, 12.5% are declining to accept new Medicare patients.

“The cuts are compounded by almost 11% in cumulative decreases over the past five years and have created a crisis in healthcare delivery,” Jerry Penso, MD, MBA, president and CEO of the AMGA, said in a written statement.

A benefit for physicians in the proposed CR is an extension of the work geographic practice cost index (GPCI) floor, helping practices in lower-wage markets to afford clinical labor.

Also left out

Democratic leaders in the Senate have been seeking CR funding for public health policies that expired at the end of 2024. The policies were included in an initial bipartisan agreement on the year-end CR but ultimately were left out after Trump, then the President-elect, and some congressional Republicans insisted on a streamlined bill with less spending.

Those same concerns appear to have blocked the policies from the newly proposed CR as well.

In addition to a physician payment raise, the lengthy list of policies in the proposed year-end bill included a change to the Medicaid DSH payment formula to better account for dually eligible beneficiaries.

Other provisions would have funded the Public Health Emergency Preparedness Program and the Hospital Preparedness Program, along with reauthorizations and updates pertaining to the SUPPORT Act, a 2018 law to address the opioid crisis. The package also would have ensured continuation of a pandemic-era law to support the health and wellness of healthcare professionals.

Although most of the provisions in the expanded package would be considered beneficial to hospitals, advocates were relieved when the year-end bill excluded a proposed requirement for off-campus outpatient departments to bill Medicare using a unique national provider identifier.

On the horizon

Once government funding for the remainder of FY25 is settled, Republicans plan to turn their attention back to the budget reconciliation process, through which they hope to pass key portions of Trump’s agenda. House and Senate GOP members have been trying to merge their respective budget resolutions into a single package.

Among the spending reductions that would be incorporated, the potential for big cuts to Medicaid looms as the most consequential healthcare issue.