Oklahoma hospitals are expected to receive significantly less funding through the state Medicaid directed payment program in the new fiscal year. But the Oklahoma Health Care Authority projects the reduction will be offset considerably by an increase to another supplemental payment program.
Hospital leaders are now asking for facility-specific projections, saying these changes will affect individual hospitals differently.
What is projected to change?
The Supplemental Hospital Offset Payment Program (SHOPP) draws down additional federal funding to make up for revenue losses on services provided to Medicaid patients. The program taxes hospitals and uses collected fees to accomplish that, and the total is redistributed to participating hospitals. That fee is currently at 4% of each hospital’s net patient revenue.
SHOPP funding is broken up into two payments. This first is based on the fee-for-service population, which includes aged, blind and disabled Oklahomans.
The state’s transition to managed care – where the Health Care Authority went from paying providers directly to paying private insurance companies to coordinate some enrollees' care – allowed for a different supplemental payment. The directed payment program is based on the managed care population, or SoonerSelect members, which includes pregnant women, children and Medicaid expansion adults.
The Health Care Authority administers the first supplemental payment to increase the reimbursements hospitals receive for serving fee-for-service patients to what Medicare would pay.
The directed payment program allows hospitals to be reimbursed closer to private insurance rates – up to 90% of the average commercial rate – for serving patients on managed care.
Every year, the Health Care Authority calculates Medicaid member utilization to project how much SHOPP funding will go to hospitals overall. That utilization is broken down by fee-for-service and managed care members, based on their enrollment status at the time of hospital admission, to determine projections for both supplemental payments.
This was the first year the agency could compare data from the private insurance companies it contracts with, called managed care organizations, as it built predictions for the 2027 state fiscal year.
This year, the directed payment program is projected to decrease from $1.08 billion last year to $872 million. A Health Care Authority spokesperson said this change reflects a decrease in inpatient utilization associated with members actively enrolled in managed care at the time of their treatment.
But the fee-for-service supplemental payment is set to increase from $300 million to $500 million. This is projected to mostly offset predicted changes in the directed payment program.
SHOPP is calculated as a whole, but then distributed to individual hospitals based on their utilization. The Health Care Authority funds it based on projections and pays based on actual utilization, the spokesperson said.
If the fee-for-service utilization is higher, the Health Care Authority will continue to work with the legislature and governor to assess a plan to ensure it’s funded, the spokesperson said.
The amount in the preprint, an approval document sent to the Centers for Medicare and Medicaid Services for the directed payment program, can be amended with the federal agency’s authorization. The Health Care Authority spokesperson said total utilization won’t be clear until the fiscal year is complete and claims are reviewed.
How are hospitals responding?
Oklahoma Hospital Association President and CEO Rich Rasmussen said the organization received the preprint, reflecting the more than $200 million in projected reductions to the directed payment program.
The association expressed concerns about the estimate in a letter to the Health Care Authority and met with the agency last week to go over its methodology. There, Rasmussen said they agreed to meet, at minimum, quarterly to review whether its predictions materialize.
Rasmussen added approved changes to the preprint can be retroactive, meaning Oklahoma has the opportunity to capture payments that weren’t originally predicted.
“I think the moral of the story is that there is a willingness going forward to be more collaborative so we better understand impacts, and the $215 million in cuts that we were fearful for are going to be offset, in part, by the upper payment limit program,” Rasmussen said. “But even that offset is not a 100% offset, and so some hospitals will see a reduction, and we just need to know who they are so we can prepare those hospitals.”
Tom Vasko, CEO of Newman Memorial Hospital in Shattuck, concurred in an email, saying he believes the statewide numbers tell part of the story, because funding changes are not distributed uniformly across hospitals. Each hospital’s reimbursement, he said, depends on various factors, including utilization, cost reports and a facility’s designation.
Critical access hospitals like Newman Memorial are reimbursed under a different methodology than other hospitals, Vasko said. If they have reached or are approaching the allowable reimbursement ceiling within the fee-for-service supplemental methodology, they may have limited opportunity to realize additional SHOPP funding.
“In that scenario, reductions in directed payments may not be offset to the same extent as they are for other hospitals,” Vasko said.
He stressed the importance of transparency through a hospital-by-hospital analysis from the Health Care Authority to help facilities understand their individual impacts under these projected changes.
“Those hospital-specific projections will ultimately drive decisions regarding physician recruitment, maternal health expansion, workforce planning, capital investments, and access to care,” Vasko said. “They will also provide communities with a clearer understanding of how these changes may affect healthcare close to home.”
“As always, my hope is that the final outcome strengthens rural healthcare rather than simply stabilizing it,” Vasko added. “Rural communities deserve more than preservation. They deserve the opportunity to continue transforming healthcare, expanding access, and building stronger, healthier communities for generations to come.”
Budget pressures remain
This follows the Health Care Authority board’s recent approval of a balanced budget, despite the agency receiving only half of its nearly $500 million budgetary increase request during this year’s legislative session.
The agency initially considered reductions to SHOPP-funded payments for hospitals and physicians, the Health Care Authority spokesperson said. But the agency identified other budget cuts and modifications and, after speaking with the governor and legislature, moved forward with a “razor-thin” budget for the new fiscal year.
The agency can tap into one-third of its Rate Preservation Fund – which currently sits at about $325 million – with the director of the Office of Management and Enterprise Services’ approval to meet cash flow needs, if they arise. But those borrowed dollars would have to be returned to the fund before the end of the state fiscal year.
Rasmussen said providers across the state are pleased that the cuts they feared didn’t materialize. But challenges are ahead as parts of President Donald Trump’s One Big Beautiful Bill kick in. He said collaboration among healthcare officials will be important.
“The more we can do and give ourselves running room to get this right so we can have minimal impact on patients in our communities, we just think that's important,” Rasmussen said.
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