Lifelines in Jeopardy: How Medicaid State Directed Payments Support Critical Health Care Providers

Medicaid supports nearly 80 million Americans, yet provider payments often fall short of covering the actual cost of care. This chronic underfunding threatens the sustainability of nursing homes, hospitals, clinics, and other providers—especially those serving large Medicaid populations—limiting their ability to invest in quality improvements and operational efficiency. To address this, many states use State Directed Payments (SDPs) to enhance rates for hospitals and other providers to sustain operations, enhance care quality, and support system-wide reforms.

Now, however, these essential payments are at risk. Congress and the Administration are considering substantial changes to Medicaid financing, including reductions to SDPs. With support from the Commonwealth Fund, Manatt Health analyzed the potential impact of SDP reductions on high-Medicaid hospitals, including urban, children's, and rural facilities. Using public data and insights from affected hospitals, the analysis quantifies state-level effects across 25 states and highlights risks to providers serving underserved communities. As Congress and the Administration debate Medicaid spending reductions, the future stability of America’s most vulnerable hospitals—and the communities they serve—hangs in the balance.