The state of Florida and the Trump administration are at odds over the status of a multibillion-dollar application for a Medicaid program that boosts payments to state hospitals.
Inaction by the administration has prompted members of Florida’s Republican congressional delegation, who less than a year ago voted to rein in these programs in part to help pay for tax cuts, to intervene to get approval.
It’s a rare example of the Trump administration butting heads with a red state over health policy, as blue states’ health programs have largely been singled out.
At the center of the fight is the Medicaid state directed payment program, a 2016 rule that allows states with managed care programs to boost rates for providers.
Republicans last year voted to start capping state directed payments in President Donald Trump’s 2025 reconciliation law, with some characterizing the program as a fraudulent scheme that hiked federal spending. In doing so, however, they allowed states to apply to continue the higher rates until new cutoffs take effect in 2028.
Florida’s payment program, which the state applied for in May, would provide state hospitals with an estimated $7.8 billion. It has been pending at the Centers for Medicare and Medicaid Services since then.
“I’m concerned that we are dealing with some entrenched opposition to Florida’s program that may not necessarily pertain to CMS’ statutory authority,” said Mary Mayhew, president of the Florida Hospital Association. She noted that CMS has previously approved similar programs submitted by Florida.
The inaction may stem from a lawsuit the Florida Medicaid program filed in 2023, after the Biden administration required the state to disclose more data about how it raises money for its share of Medicaid funding.
The 11th Circuit Court of Appeals in December ruled that Florida is unlikely to succeed in the case and denied a preliminary injunction, even as a national injunction was issued last year in a similar lawsuit filed by Texas. CMS is appealing the Texas decision. But Florida’s application has not moved forward, sparking frustration from Republicans in the state’s congressional delegation.
“Because of this ongoing delay, Florida hospitals are increasingly concerned about the potential consequences for their patients, including limited access to essential health care services,” Florida Republican Reps. Aaron Bean, Daniel Webster, Anna Paulina Luna, Mike Haridopolos, Randy Fine, Byron Donalds, Jimmy Patronis, Maria Elvira Salazar and John Rutherford say in a letter to CMS last month.
Those lawmakers supported the 2025 reconciliation law. It caps state directed payments at no more than 110 percent of the Medicare reimbursement rate for states that haven’t expanded Medicaid under the Affordable Care Act, which includes Florida. For states that have expanded Medicaid, the rate is capped at the Medicare rate.
Payments can continue as usual if applications were submitted by July 4, 2025, and meet other timing conditions, a provision added to secure the support of some Republicans hesitant to cut off funding streams for their states. Florida was one of many states to submit applications as Congress was signaling its intent to make changes to the state directed payment programs.
Beginning Jan. 1, 2028, those payments will be reduced by 10 percent each year until they reach the rates stipulated in the reconciliation law.
But until then, it’s big stakes for Florida hospitals. A previous version of the program was approved at $3.3 billion for state fiscal year 2024-25, according to data from Florida’s Medicaid agency. Approving the new request would increase funding to $7.8 billion for state fiscal year 2025-26, according to the agency.
“In the recently adopted One Big Beautiful Bill Act, the House and Senate established a straight forward framework: states must submit a preprint, prepare for a gradual phase-down in pool size, and maintain strong accountability. Florida is fully compliant with these requirements,” the group of Florida Republicans wrote in a separate letter in September.
A CMS spokesperson said the agency is “actively reviewing numerous” applications by states but does not comment on them directly until they are finalized.
Hundreds of applications
Medicaid state directed payment arrangements grew rapidly after they were created in 2016.
Medicaid reimbursement rates are typically lower than what is paid by Medicare and commercial health plans, leading some providers to lose money for serving low-income patients or others to limit the number they see.
Under the program, states that contract with insurers to run their Medicaid programs — which is known as Medicaid managed care — are able to get permission from the federal government to direct plans to boost the Medicaid rates. That sometimes results in doubling or tripling what they would have been otherwise.
Many states raise money for these programs by taxing health care providers and then putting that money toward their share of Medicaid spending, which is then matched by the federal government. Those payments programs have been heavily scrutinized by Republicans and critics of escalating Medicaid spending.
Yet many Republican-led states, including Florida, are among those that submitted hundreds of applications to CMS seeking to increase provider taxes and state directed payments before the programs begin scaling down in 2028.
Unlike Florida’s, most of those applications have been approved, though not always promptly, said a source familiar with the situation who’s not authorized to speak about it.
In the past, such applications typically took about 90 days for approval if all requirements are met. That timeline has slipped under the Trump administration, according to people familiar with the process. CMS appears to be scrutinizing applications more closely, especially for bigger ones related to hospitals, they say. Florida is not immune to that scrutiny despite its leaders being strong allies of the president.
Even Matt Gaetz, former House Republican and Trump’s failed nominee last year for attorney general, tweeted: “how is CMS letting New York get away with massive fraud while Florida can’t even get basic funding approved? Please save us from the bureaucracy,” he said, tagging CMS administrator Mehmet Oz.
Oz, though, is no fan of state directed payments, calling them “legalized money laundering.”
Some hospitals have waited 200 to 300 days for approval for funding that was already built into their budget, said Sarah Mutinsky, counsel to America’s Essential Hospitals, an association of safety net hospitals.
“So they’ve been providing services under their contracts, but not getting the payment amounts that they really need for several quarters or more,” she said.
Lawsuits
A source familiar with the situation blamed the litigation over state directed payment programs. The approval process can involve multiple rounds of questions from the agency, but Florida hasn’t answered CMS’ recently submitted questions, the source said.
The litigation centers on a memo issued in 2023 under the Biden administration indicating it would bring more scrutiny to states’ Medicaid financing arrangements and requesting more information from them. Texas and Florida each sued the agency.
Some states fund their state directed payment programs by taxing health care providers — money that is then matched by the federal government. The law requires states to tax all providers in a class, regardless of how many Medicaid patients they see, and prohibits states from “holding harmless” taxed providers — meaning assuring them they will get all of their money back.
In Florida, some private hospitals are taxed through local jurisdictions. The state Medicaid program receives this money, obtains federal matching funds, and then disperses those funds back to the hospitals.
CMS, in a notice to Florida in 2023, said it will investigate the state’s arrangement because it “may be similar to other states’ arrangements that appear to violate federal requirements.”
Florida argued it wasn’t violating hold harmless provisions because the state wasn’t a party to those those inter-hospital agreements.
Florida’s Medicaid program said in legal filings that complying with those questions would be costly for the state and it “lacks the personnel to police private agreements — potentially secret or unwritten agreements — among hundreds of private hospitals around the state.”