Hospitals and other medical providers will see an uptick in funding in the state’s $34.2 billion Medicaid budget, a significant bump and welcome relief as they contend with uncertain federal funding and looming cuts.
The state’s $254 billion budget, passed by lawmakers late Thursday, includes a series of health payment rate increases, including a 10% reimbursement bump for hospital outpatient services and the resurrection of a $500 million fund for financially distressed hospitals.
The warm reception from hospitals and nursing homes is a departure from recent years, when providers have pleaded with Gov. Kathy Hochul to fund a multi-year Medicaid reimbursement rate increase to make up for persistent funding shortfalls.
Ken Raske, president and CEO of the lobbying group Greater New York Hospital Association, which represents more than 200 regional hospitals, thanked Hochul and the state legislatures in a letter to members on Thursday for “investing in New York’s financially struggling hospitals and nursing homes.”
Brian Conway, a spokesman for GNYHA, said that the state’s financial plan is a “fair budget for New York’s hospitals and nursing homes.”
“We have always said that ending Medicaid underpayments will be a multi-year, multi-budget endeavor,” Conway said. “This budget brings us closer to that goal.”
The state’s Medicaid funding boost comes as health care providers face an unpredictable financial landscape under the Trump administration. Federal lawmakers are seeking $880 billion in funding cuts that will largely affect Medicaid, leaving hospitals uncertain about their federal revenue streams in the coming years. The managed care organization tax, a federal Medicaid loophole that the state relies upon for funding, could also be a target.
“The looming threat of deep federal health care cuts and the potential elimination of managed care taxes have been major concerns throughout the budget process,” Raske said. “So while the final budget’s health care provisions provide important funding for GNYHA members, there is more work to be done.”
The bulk of the state’s health care budget stems from revenue from the MCO tax. The tax uses a federal loophole to draw down more than $2 billion in additional federal funds during the current fiscal year. More than $1.5 billion in tax revenue will flow to provider Medicaid rate increases, with $305 million going to hospitals, $192.5 million going to nursing homes and $40 million going to federally qualified health centers, budget documents show. The remaining $500 million will offset the state’s Medicaid global budget cap, a limit on the state’s annual spending growth within the program.
Though revenue from the MCO tax is meant to boost Medicaid rates and ease providers’ operating challenges, budget watchdogs maintain that it’s a risky move that’s likely to permanently increase the state’s Medicaid costs.
“Once the revenue disappears, lawmakers are unlikely to roll back the rate increases, thereby creating a new fiscal cliff in an already fiscally unsustainable program,” Andrew Rein, president of the nonprofit think tank Citizens Budget Commission, said in a statement.
The deal includes another $1.3 billion for hospitals and other providers through the safety-net transformation program, an initiative launched in last year’s budget that incentivizes well-resourced hospitals to partner with financially distressed institutions to turn around their finances. Roughly $1 billion of that investment will cover capital costs, and the remaining $300 million is earmarked for operating expenses.
Hospitals also praised an agreement to continue funding the medical indemnity fund, which covers lifetime medical costs for babies harmed at birth. The fund has faced continued shortfalls that have jeopardized its ability to enroll new patients in recent budget years; the state included $211 million to keep the fund open through June 2026 to give state officials more time to reform how the program is funded.
State lawmakers included language in the budget that allows Hochul to make mid-year spending cuts if the state faces a $2 billion budget shortfall from federal cuts.
