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How Medicaid cuts could impact Ohio’s rural healthcare systems
By: Amanda Pirani
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ZANESVILLE, Ohio (WOUB/Report for America) – Matt Perry, chief executive officer of Genesis Healthcare System, says serving rural populations comes with some tough business margins.
“It’s both more challenging, but it’s also very rewarding when we can do it very well,” he said. “But clearly the economics around it are harder.”
As a nonprofit, he believes it’s a mission Genesis is called to. But that mission could see even more challenges in the coming years.
The Kaiser Family Foundation estimates Ohio will lose 13% in federal Medicaid funds due to provisions of the One Big Beautiful Bill Act, signed into law by President Trump on July 4. That’s about $33 billion in federal spending.
Most of those cuts come down to two changes the law makes to Medicaid policy. The first is work requirements for those covered by Medicaid expansion, beginning in 2027. The second is new restrictions to provider taxes and state-directed payments — some of the tools states use to pay for Medicaid.
Experts worry rural health care systems like Genesis will see the greatest hits to funding. That could force providers to cut back on the services they offer to patients, or to close altogether.
Rural hospital systems at risk
While the national health care industry is recovering from the COVID-19 pandemic, rural hospitals have continued to struggle. The Ohio Hospital Association told state legislators in May 72% of Ohio’s rural hospitals reported negative profit margins from 2022-24.
Perry said this is in part due to the fact that rural health care systems see more patients who are covered by Medicaid.
“The amount of money flowing into the system is just different, and usually has a higher percentage of patients with Medicaid as their insurance,” he said. “Medicaid is the worst payer just from a reimbursement standpoint, but it’s our mission.”
Data suggests the fund won’t be enough to make up for $137 billion reduction in federal Medicaid spending in rural areas.
Leaders of Ohio’s rural hospitals are also concerned the bill’s vague language could keep the money from reaching those that need it most.
For rural health care systems, work requirements mean less revenue
Work requirements for those covered by Medicaid expansion, which take effect in 2027, could result in cuts to the already limited revenue hospitals see from those patients. Starting in 2027, the expansion group will also have to reapply for Medicaid every six months instead of annually.
Ohio is one of 40 states that opted into Medicaid expansion, a 2014 program under the Affordable Care Act. Expansion allowed more people to qualify for Medicaid by raising the threshold to 138% of the federal poverty level instead of 100%.
According to the Ohio Department of Medicaid, 770,000 people in the state are covered by Medicaid expansion. About one-third live in southeast Ohio.
Both Medicaid and Medicaid expansion differ from Medicare, a federal health insurance program for those over 65.
Rose Frech is the director of external affairs at Integrated Services, which provides behavioral health care in southeast Ohio. Most of the patients it serves are covered by Medicaid.
Frech said many people are at risk for losing coverage not because they don’t work or meet exemption requirements, but because of the red tape involved in reporting that information.
“When you introduce this extra administrative hurdle, I anticipate it’s going to cause a lot of stress, and I also anticipate that it’ll result in a lot of folks losing coverage simply because they’re not able to navigate all of those challenges,” she said.
The Congressional Budget Office estimates 10 million more people will be uninsured by 2034 due to provisions in the One Big Beautiful Bill Act. This increase in the uninsured population will cost hospitals.
Dan Atkinson is chief executive officer of Muskingum Valley Health Centers (MVHC), a network of nonprofit, federally qualified health centers in southeast Ohio.
Atkinson said Medicaid is one of MVHC’s main sources of revenue. If Medicaid patients lose coverage under the bill it could lead to reductions in staffing or non-essential services down the line.
“That creates significant financial challenges, especially in rural communities,” he said. “As a health center, we’re probably most likely going to have to be very careful about carefully monitoring programs that we can afford to continue to provide.”
Atkinson also expects MVHC will see an increased demand for services as the bill goes into effect, because federally qualified health centers treat patients regardless of their ability to pay. But federally qualified health centers have not seen a significant base funding increase in several years.
Any loss in health care services would compound an ongoing shortage of care in southeast Ohio, which the Health Resources and Services Administration considers a health care professional shortage area.
Of the 31 Ohio counties in the state’s southeast region, 17 have only one hospital to serve the population. Meigs, Vinton, Carroll and Morgan counties have no hospital at all.
If health care providers have to pare back on staff or services, that also has economic effects. In rural counties with a hospital, that health care system is often one of the largest employers.
Provider tax cuts on the horizon
While work requirements make up the greatest proportion of Medicaid cuts in the One Big Beautiful Bill Act, it’s not the only change that could prove significant for Ohio’s health care providers.
Over the next several years, the bill will restrict how the state can pay for Medicaid and decrease the federal funding Ohio receives for its Medicaid program. It will accomplish those cuts by gradually limiting states’ ability to use lesser known financing tools called provider taxes and state-directed payments.
The federal share is based mostly on a medical assistance percentage, which takes into account a state’s population and income when matching state Medicaid spending.
Every state except Alaska uses provider taxes to help fund Medicaid. In Ohio, there are a few different kinds of provider taxes, but the most important one is known as the hospital franchise fee — a tax levied on Ohio’s hospitals.
While it may sound counterintuitive, provider taxes ultimately provide money back to hospitals, in part because of the federal match. The money generated from provider taxes allows the state to spend more money on Medicaid and in turn receive a higher federal match in funding.
However, provider taxes have recently come under scrutiny by some lawmakers.
Teresa Lampl is chief executive officer of the Ohio Council of Behavioral Health & Family Services Providers, a trade association for behavioral health providers in the state. She said some view the taxes as a ponzi scheme used to artificially inflate a state’s Medicaid spending.
“As the program has grown, there has been this belief that using that provider tax is somehow gaming the system,” Lampl said.
In light of this criticism, the One Big Beautiful Bill Act gradually reduces the provider tax limit from 6% to 3.5% in expansion states, and freezes provider tax rates for two years in every state. Beginning Oct. 1, 2027, the provider tax cap will decrease by 0.5% each year until it reaches 3.5% in 2031.
The move will result in $191 billion in federal spending cuts, according to a Kaiser Family Foundation analysis of Congressional Budget Office estimates.
For the next few years, Perry said Ohio hospitals will see an increase in Medicaid reimbursements, because the state increased its provider taxes just before the passage of the One Big Beautiful Bill Act.
“We’re going to go from 3.5% up to almost 6%, and then starting in 2028 that match is going to start coming down a half a percent per year,” Perry said.
In the long term, health care providers will see less money coming in from patients covered by Medicaid. Stakeholders worry could lead to difficult choices for lawmakers and providers.
Marla Morse, executive director of Oral Health Ohio, said she’s concerned dental benefits may be at risk as the state’s Medicaid budget shrinks. The federal government requires that some services are covered by Medicaid, but others are optionally included by states.
“One thing that we’re concerned about is that as states are trying to figure out how they’re going to deal with the financing changes regarding provider taxes … that they would eliminate the adult dental benefit because it’s optional,” she said. “So are vision and hearing.”
State-directed payments will see new limits
Beginning in 2028, states will also have to lower their state-directed payment rates. State-directed payments are a tool that allow state Medicaid programs to intentionally direct Medicaid funding to particular health care providers.
Like most states, Ohio administers Medicaid through contracts with Managed Care Organizations (MCOs). According to the Kaiser Family Foundation, the majority of Medicaid plans are delivered through managed care plans.
Ohio University professor and health care policy expert Cory Cronin said Managed Care Organizations allow the state to reduce the administrative costs and work associated with directing a health insurance program.
“Many states, Ohio included, have … used the Medicaid budget for insurance companies to be the ones to administer the program, so that the state of Ohio doesn’t have to,” Cronin said. “They have systems in place, the processes in place to do these things.”
MCOs receive a monthly fee per person enrolled in a plan, based on what a person’s health care is expected to cost on average. Then, MCOs negotiate their own reimbursement rates with providers. The payment arrangements between providers and managed care organizations can be complex, and approaches vary. Generally speaking, payment rates are negotiated for sets of services and can also be tied to patient outcomes.
In addition to these rates, providers might receive supplemental payments, like state-directed payments.
The Centers for Medicare and Medicaid Services introduced state-directed payments in 2016 to give states a way to increase Medicaid spending in specific cases. The Government Accountability Office published a report in 2023 arguing that more oversight of state-directed payments was needed, in part due to the rapid increase in the use of state-directed payments from 2016 to 2022.
“It’s only for special populations, where you may have trouble recruiting cardiologists, or you may have trouble recruiting staff,” Lampl said. “So it’s a way to help the hospital in those areas cover the cost to provide that higher level of special care to people in the community.”
Right now, state-directed payments often allow a provider to be reimbursed at average commercial rates. But the new law will direct states with Medicaid expansion to move toward a maximum state-directed payment rate of 100% of the Medicare rate.
Between now and 2028, states cannot request new rates that exceed the 100% cap. Beginning in 2028, existing rates will have to decrease by 10% until they reach 100% of the Medicare rate.
For hospitals that receive more funding as a result of state-directed payments, that will mean less money to fund staff and services. While Medicare is generally a better rate for providers than Medicaid, it’s around one-half or one-third of commercial rates.
Lampl expects the caps will have a disproportionate impact on rural hospitals.
“Depending on the program, it would be a significant loss to a moderate loss, which will be really hard for many rural hospitals in particular,” she said.
States are expected to receive more information about the implementation of the One Big Beautiful Bill Act from the Department of Health and Human services by June of 2026.
As changes to the state’s Medicaid program roll out, Perry said he hopes to work with state lawmakers to protect rural health care systems.
“There’s still a lot of change coming,” he said. “There’s going to continue to be a need for unique and creative ways of funding rural health care so that the rural health care community … remains viable and strong.”