Health Law Daily Wrap Up, SENATE NEWS—Senate Finance Committee releases bill text with deeper Medicaid cuts, (Jun 17, 2025)

By Sheila Lynch-Afryl, J.D., M.A.

The draft bill would make additional changes to Medicaid provider taxes and state-directed payments.

Almost a month after the U.S. House of Representatives passed the One Big Beautiful Bill Act (H.R. 1), the Senate Finance Committee released its own text with steeper cuts to Medicaid. Among the differences from House-passed version of the bill are changes to Medicaid provider taxes and state-directed payments. Senate Finance Committee Chair Mike Crapo (R-Idaho) said that the draft bill, which the Senate hopes to pass by the July 4 recess, targets “waste, fraud and abuse in spending programs while preserving and protecting them for the most vulnerable.”

Both the House and Senate versions freeze states’ provider taxes and prohibit states from establishing new provider taxes. In addition, section 71120 of the Senate bill would maintain the “hold harmless” threshold at 6 percent (see Soc. Sec. Act § 1903(w) (42 U.S.C. § 1396b(w))) for nonexpansion states and, for expansion states, phase in a cap beginning at 5.5 percent in fiscal year (FY) 2027 to 3.5 percent in FY 2031 and later. Exceptions would apply for nursing homes and intermediate care facilities.

According to the Kaiser Family Foundation, all states except Alaska use provider taxes to help finance their share of Medicaid spending. A summary of section 71120 says that it “ends Medicaid financing gimmicks that increase federal spending by freezing and reducing provider taxes.” Sens. Josh Hawley (R-Mo) and Jim Justice (R-WV) have been leery of provisions limiting states’ provider taxes.

Both the House and Senate versions limit certain Medicaid state-directed payments, which are supplemental payments to providers under managed care organization contracts. However, the Senate version changes how the payments are grandfathered.

In addition, the Senate bill, like the House version, imposes Medicaid work requirements. However, while the House version exempted all individuals with dependent children, under the Senate version, only those with children age 14 and under are exempt.

Instead of placing a moratorium on final rules relating to eligibility and enrollment in the Medicare savings programs and Medicaid/CHIP and the nursing home staffing mandate, the Senate bill would prohibit their implementation.

Other provisions from the House version were not included in the Senate draft; for example:

• exclusion for orphan drugs under the Medicare Drug Price Negotiation Program (section 44301);

• physician fee schedule pay increase (section 44304);

• expansion of the definition of rural emergency hospital under Medicare (section 111201);

• addressing the use of AI to recoup Medicare improper payments (section 112204);

• addressing pharmacy benefit manager transparency (section 44305); and

• altering exchange enrollment periods (section 44201).

The American Hospital Association argued that the Senate’s “harmful proposals” will “impact access to all patients who are served by our nation’s hospitals and health systems” and “force hospitals to reconsider services or potentially close, particularly in rural areas.” America’s Essential Hospitals similarly said that the “draconian Medicaid cuts” in the Senate bill will “devastate health care access for millions of Americans and hollow out the vital role essential hospitals play in their communities.”

Companies: Kaiser Family Foundation; American Hospital Association; America’s Essential Hospitals

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