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House Bill 577 — State directed payments in Medicaid

House Bill 577 — State directed payments in Medicaid

Niklas Kleinworth
February 28, 2024

Bill Description: House Bill 577 requires the Idaho Department of Health and Welfare to seek the establishment of a state directed payments program under the Medicaid managed care program.

Rating: -5

Does it create, expand, or enlarge any agency, board, program, function, or activity of government? Conversely, does it eliminate or curtail the size or scope of government?

This legislation creates a new state directed payments program within the Idaho Department of Health and Welfare, Division of Medicaid. This program would provide additional payments to hospitals contracted under the state’s managed care plan.

This program is not to be confused with Disproportionate Share Hospital payments, also known as DSH payments. These are supplemental payments to hospitals that serve a disproportionately high share of Medicaid beneficiaries. As recently as the 2023 federal fiscal year, the state had $20.6 million in DSH payment capacity.

This new program is known as a “state directed payments” program, and it would be new to Idaho. These payments are made directly to providers in addition to base payments for services.


Does it increase government redistribution of wealth?

This legislation provides additional payments to providers without setting any requirements or goals for how the money will be spent. The statement of purpose notes that these funds are simply supplemental funds given to providers for the very broad goal to “offset losses associated with providing services to Medicaid patients.”

This program redistributes funds in two ways. First, state-derived funds redistribute wealth by collecting provider taxes and sending them to favored provider entities as determined by the Idaho Department of Health and Welfare.


The second method of redistribution occurs through the federal share of the funding, which is derived from taxpayers to further subsidize the nation’s medical welfare program.


Does it increase government spending (for objectionable purposes) or debt? Conversely, does it decrease government spending or debt?

The fiscal note for HB 577 states there is no fiscal impact to state or local government spending, but this is part of the problem with state directed payments. State directed payment programs, including the one proposed in this legislation, fund the program through additional provider taxes — not the state General Fund.

The program effectively legalizes money laundering for states, letting them build their Medicaid programs with additional federal dollars. Nationally, the federal share of funding for state directed payments is 68%. But after factoring in the additional provider tax revenue to the states, the effective federal contribution is 82%.

States make out well because the costs of the program are recouped through the additional provider tax revenue. But providers also make out well because they receive more money than they pay in provider taxes.

This scheme increases federal spending while creating the false impression of zero costs to the state. Being that Medicaid spending is one of the main drivers of the federal deficit, this program will cost taxpayers through their federal tax bill.


Does it violate the principles of federalism by increasing federal authority, yielding to federal blandishments, or incorporating changeable federal laws into Idaho statutes or rules?

This legislation yields to federal requirements for hospital qualifications for participation in the Idaho Behavioral Health Plan as cited in 42 CFR 438. There is no reference that limits the power of this section of federal regulations to its current state, opening Idaho up to new federal regulations down the road. This yields the reach of Idaho Code to the Code of Federal Regulations, violating principles of federalism.


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