Lawmakers hosted an interim study Tuesday on the impacts of federal cuts to Medicaid that were signed into law in July.
Rep. Mark Chapman (R-Broken Arrow) and Rep. Preston Stinson (R-Edmond) led the discussion. Chapman said he thought it was a topic they should explore amid hearing concerns about decreases in federal funding and revenue shortfalls.
“As it impacts our state budget, I think we need to just try to wrap our heads around it and not get caught surprised,” Chapman said.
The conversation highlighted how the changes will impact Oklahoma’s health care landscape, including hospital finances and patient access.
Provider taxes and state-directed payments
President Donald Trump’s megabill prohibits states from establishing any new provider taxes or increasing the rates of existing taxes. For example, in Oklahoma, this impacts the Supplemental Hospital Offset Payment Program (SHOPP), which draws down additional federal funding to shore up underpayments in Medicaid.
The program taxes hospitals and uses collected fees to accomplish that. The total is redistributed to participating hospitals. That fee is currently at 4% of each hospital's net revenue.
All states except Alaska use provider taxes to help finance the state’s share of Medicaid spending, and the current federal maximum is 6%. This limit will now be phased down by .5% annually starting in FY 2028 until it reaches 3.5%. This means Oklahoma’s rate will remain at 4% until FY 2032.
State-directed payments allow Oklahoma to increase reimbursement rates to hospitals so they are not being paid below cost. Amid a transition to managed Medicaid, where the Oklahoma Health Care Authority (OHCA) went from paying providers directly to paying private companies to coordinate some enrollees’ care, hospitals benefited from increased reimbursements.
Before managed care, OHCA could only draw down the difference between Medicaid and Medicare rates, totaling supplemental payments of about $800 million annually. As the state moved to managed care, it approved a methodology tied to quality improvement, allowing it to draw down closer to what commercial insurers would pay, which is the difference between Medicaid and 90% of the average commercial rate.
“That caused an influx of about $600 million into the hospital system,” said Christina Foss, Oklahoma’s Medicaid director. Amid new agency leadership, an OHCA spokesperson confirmed last week that Foss will be “transitioning out” of her role.
Trump’s megabill will begin phasing down these payments by 10% every year starting in January 2028 until they reach 100% of the Medicare rate.
Over 10 years, this will mean an approximately $6.7 billion impact on state hospitals, said Scott Tohlen, the vice president of advocacy for the Oklahoma Hospital Association.
“The only way you get to that type of reduction is by cutting services,” Tohlen said. “I think certainly this body has shown that they are very concerned about mental health, psychiatric care, etcetera. This is one of those areas where I can imagine that you will see cuts because the margins just do not work on some of those services. And so that is deeply concerning for us.”
Maggie Martin, the Oklahoma Hospital Association’s chief legal officer, said as Oklahoma returns to pre-managed Medicaid, 2023 reimbursement levels, it’s important to review hospitals’ financial status.
In 2023, 53% of rural hospitals paid on a fixed rate fell into a medium or high risk, Martin said, meaning they were at risk of closure. And 79% of Oklahoma’s critical access hospitals were at risk of closure.
Martin said some Oklahoma hospitals are already struggling to make payroll.
“This is something that we're looking at and trying to determine ‘How we can assist our hospitals with these cuts?’” Martin said.
Work requirements
The megabill also includes work requirements of 80 hours per month for adults ages 19 to 64, with certain mandatory exemptions. Those include populations like pregnant women, foster youth, Indigenous groups, veterans with rated disabilities and individuals who are medically frail, among others.
Foss said the agency is awaiting guidance from the Centers for Medicare and Medicaid Services (CMS), which is required no later than June 2026. The implementation deadline is at the end of 2026.
An initial analysis found work requirements could affect about 126,000 Oklahomans, Foss said. Although there is a lot of work ahead to ensure this significant population is aware of what’s coming, she said it feels manageable. She said OHCA plans to apply the lessons it has learned over the past few years through communicating with members during transitions, like the Medicaid unwinding and move to managed care.
Currently, OHCA is working to connect people to resources, like workforce and educational opportunities.
“So, by the time this requirement does come into effect, we've set them up for success, and they can stay eligible if they so wish,” Foss said.
Foss said a $5.1 million impact listed in the agency’s presentation is an estimate of the state’s share of $16.4 million in costs for a potential technology solution to streamline the process.
Martin said if people lose access to their health coverage, state hospitals will see an increase in those presenting to their emergency rooms without insurance.
“So we will see a significant increase in the amount of uncompensated care that we are providing to Oklahomans,” Martin said. “And so that will put an even further additional financial burden on our hospitals.”
The Rural Health Transformation Program
Speakers also addressed the Rural Health Transformation Program, which is a fund added to Trump’s megabill to help “stabilize and strengthen” rural hospitals and providers.
“CMS has been very, very adamant that this funding is meant to create some sustainable planning for rural health care, not necessarily to make up for some of the changes in the directed payments that we talked about previously,” Foss said.
CMS is administering the $50 billion in state grants, distributing $10 billion annually from FY 2026 to FY 2030.
Funding is split in half, with $25 billion set aside to be distributed equally among all states with approved applications. The other $25 billion is to be distributed based on various factors, including the percentage of the population that is rural, the proportion of rural health facilities relative to nationwide and the situation of hospitals.
State agencies sent out a request for information in August, seeking the input of people living and serving in rural areas for Oklahoma’s plan. Listening sessions were conducted in Woodward, Altus, Atoka and Muskogee.
Foss said respondents were aligned on needs, including virtual care, workforce, managing chronic conditions and sustainability for rural hospitals.
The application is due Nov. 5, and Oklahoma will hear back by the end of the year. Foss said CMS told them to build this application as if the state will receive at least $200 million a year.
Martin said the association hopes to see funding support hospitals with aging facilities and potentially bring back obstetrical services to communities that haven’t had the finances to sustain them.
Because this is a cooperative agreement with CMS, the agency will be heavily monitoring and, each year, grantees will have to prove they hit certain outcomes. Otherwise, the agency could claw back money or reduce the amount received next year, Foss said.
“So while it is a one-time application, there [is] not only the continuous reporting that you do with CMS regardless, but there's that yearly opportunity for I would say tweaks and funding changes, potentially,” Foss said.
Foss thanked lawmakers for inviting organizations to speak on the impacts of what is ahead.
“Our request would just be the continued collaboration with those on both sides of this table and all of our systems and partners throughout the state,” Foss said.
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