Seventy-two minutes after Gov. Dan McKee released his proposed fiscal 2026 budget on Jan. 16, the state’s hospital trade group fired back.
The Hospital Association of Rhode Island in a statement warned that McKee’s spending plan would “worsen the health care crisis,” harming hospitals and, in turn, the residents who depend on them for critical services.
The strong and swift response came 11 days before the abrupt threat of a federal funding freeze that could hold up billions in aid for local hospitals.
Rhode Island’s array of private and nonprofit hospitals have been battling rising costs, staffing shortages and a frenzy of malpractice claims for years. Meanwhile, a critical source of revenue — Rhode Island’s reimbursement rates for the one-third of state residents on Medicaid — has not kept pace with operating costs, or with neighboring states.
“We need full restoration of Medicaid reimbursement rates and additional investments in our hospitals,” Lisa Tomasso, executive vice president for the hospital association, said in an interview. “We can’t afford anything less.”
Yet, the state might not be able to afford anything more. Facing a projected $223 million budget deficit, McKee’s proposed spending plan emphasizes cost savings rather than tax hikes to close the gap.
“The Governor’s goal was balancing fiscal responsibility without making cuts to critical services upon which Rhode Islanders rely,” Olivia DaRocha, a spokesperson for McKee’s office, said in an email. “The Governor applied this approach across all programs in the budget, including hospital funding.
Medicaid is an obvious place to find savings, said Robert Hackey, a health sciences professor at Providence College.
“We did our best to try to make hospitals whole from additional costs incurred during COVID, but the days of federal stimulus money are over,” Hackey said. “If state budget officials want to realize cost savings, Medicaid kind of has a perennial target on its back because that’s where the money is.”
If state budget officials want to realize cost savings, Medicaid kind of has a perennial target on its back because that’s where the money is.
Hence, why McKee is seeking to circumvent the statutorily required increase in Medicaid reimbursement rates for hospitals and nursing homes.
Under state law, Medicaid reimbursement rates automatically increase each July based on federal pricing set by the Centers for Medicare & Medicaid Services. Rhode Island hospitals were expecting to see Medicaid reimbursement rates increase by 3.4% and 2.9% for inpatient and outpatient services, respectively, starting July 1.
But McKee is attempting to maneuver around the law by using the budget process, instead proposing a 2.3% annual rate hike — matching the state’s projected revenue growth rate. If he can convince the General Assembly to go along with the idea, a smaller reimbursement rate increase could save $5.3 million in fiscal 2026, $1.7 million of which is state funding.
“What we’re saying is, you’re getting as much as we’re getting,” Brian Daniels, director for the Rhode Island Office of Management and Budget, said of the proposed rate increases during a Jan. 16 briefing with reporters.
The state’s fiscal 2025 budget included the full 3.3% Medicaid reimbursement rate increase set by CMS.
Not as bad as the cabinet head’s proposal
McKee’s proposed Medicaid reimbursement rates for hospitals are less harsh than what Richard Charest, secretary of the Rhode Island Executive Office of Health and Human Services, pitched in his Sept. 30 memo to the state administration. In order to meet the state mandate for a constrained budget — reducing spending by 7.5% from current levels — Charest suggested freezing Medicaid reimbursement rates at the 2025 level. In other words, no increase at all.
“The Executive Office has limited options in meeting OMB’s constrained target because as an entitlement, eligible individuals have rights to payment for medically necessary health care services,” Charest wrote. “Annual inflation increases to hospitals are supplementary and not required, therefore can be frozen.”
Charest was unavailable to comment. In an emailed statement, Kerri White, a spokesperson for EOHHS, reiterated the narrative included in the agency’s budget memo.
“EOHHS’s FY26 budget proposal includes several spending initiatives focused on meeting the goals of Governor’s McKee’s Rhode Island 2030 plan and EOHHS’s priorities,” White said. “In determining the proposed savings, EOHHS considered changing current practices in Medicaid operations to generate more immediate savings and revenue options.”
Another $18.3 million in budget savings comes via McKee’s proposal to end the state’s upper payments limit program, a longstanding reimbursement to fee-for-service providers meant to close the gap between Medicaid reimbursements to hospitals and what other health insurance programs would pay. McKee also wants to realign hospital licensing fees based on fiscal 2023 patient revenue — rather than the existing 2022 data — which tacks on an extra $16.3 million in fees across the state’s hospitals.
State budget officials have downplayed the proposed funding cuts and fee hikes, touting other areas of support such as a secondary source of payments to hospitals for Medicaid costs via managed care providers. McKee’s proposed fiscal 2026 budget includes $333.8 million in these state-directed payments to hospitals, $47 million more than the fiscal 2025 budget.
Not enough
Sen. Pam Lauria, a Barrington Democrat and nurse practitioner who is vice chair of the Senate Committee on Health & Human Services, said she was “disappointed” by the governor’s proposed funding for hospitals.
“Brown Health just got back in the black,” Lauria said, referring to the state’s primary hospital operator, which is also her employer. “I don’t think this is the time to put them back on their heels.”
Like hospitals nationwide, Brown University Health, formerly known as Lifespan, recorded eight-digit operating losses in fiscal 2021 and 2022, returning to a positive operating income in fiscal 2023 and 2024. The company also announced in September it was laying off 20% of its executive team as part of a “corporate restructuring” aimed at cutting costs.
Sharon Torgerson, a Brown University Health spokesperson, referred questions and requests for comment on McKee’s budget proposals to the hospital association. Other hospital operators contacted for this story, including Care New England, Yale New Haven Health (owner of Westerly Hospital), South County Health and CharterCARE Health Partners (owner of Roger Williams Medical Center and Our Lady of Fatima Hospital) also declined or did not respond to inquiries for comment.
For Roger Williams and Fatima, any funding cuts hit harder. The pair of safety net urban hospitals are already struggling to balance their books and pay their bills under the documented mismanagement of Prospect Medical Holdings. A pending sale to a new, nonprofit owner could offer a better prognosis, but the transaction remains on shaky ground now that Prospect has filed for Chapter 11 bankruptcy.
“They’re on the brink right now,” Hackey said of Roger Williams and Fatima. “One hundred percent, this would not help their position.”
If the sale of Roger Williams and Fatima to The Centurion Foundation falls through, finding a new buyer to take on the two urban, safety net hospitals would be even harder with the proposed Medicaid reimbursement rates.
Rhode Island already offers lower reimbursement rates to hospitals and providers compared with its peers in Massachusetts and Connecticut — a pain point well known among health care executives, employees and advocates.
The average fee-for-service payment per inpatient discharge to Rhode Island hospitals was $14,324 in 2021, compared with $16,381 in Massachusetts, and $16,951 in Connecticut, according to a 2024 report commissioned by the Rhode Island Foundation.
And the per-patient cost for those in government insurance is more than twice that of the cost for those on private insurance; as of 2019, Rhode Island providers spent on average $11,420 for each Medicare enrollee, $9,230 per Medicaid enrollee, and $4,501 per patient in private insurance.
But it’s not always logical to compare state Medicaid programs based on geographic proximity, said Maureen Hensley-Quinn, senior director of coverage, cost and value for the National Academy of State Health Policy. Massachusetts has nearly seven times the population while Connecticut has three and a half times the number of residents of Rhode Island.
“Massachusetts and Connecticut are demonstrably larger states, with much different demographics and tax bases,” Hensley-Quinn said. “I get very wary of making comparisons that way.”
Prioritizing primary care
Nevertheless, local healthcare administrators and advocates blame Rhode Island’s lower rates for staffing shortages, especially among primary care workers.
In a nod to the primary care physician shortage, McKee’s spending plan includes an additional $200,000 in state funding to expand student loan forgiveness to primary care doctors and pediatricians who stay and work in underserved areas. He also recommended that primary care workers be included in the Rhode Island Office of Health Insurance Commissioner’s biennial rate review — the first step to potentially increasing reimbursement rates.
But the health of Rhode Island’s primary care workforce and its hospitals are inextricably linked. The state’s two largest hospital operators, Brown University Health and Care New England, also employ hundreds of physicians in primary care practices throughout the state. Their financial health directly affects the prognosis of the primary care doctors who work for them.
“They’re all interconnected and right now, our healthcare system is so fragile,” Lauria said. “You can’t say, we’re going to fix primary care over here and not address hospitals, too.”
They’re all interconnected and right now, our health care system is so fragile. You can’t say, we’re going to fix primary care over here and not address hospitals, too.
Especially as the Trump administration seeks to cripple federal grants and aid, including, potentially, Medicaid. Even before the now-infamous series of White House budget memos dropped on Jan. 27, Republicans in Washington had indicated Medicaid programs could be on the chopping block.
The uncertainty of federal funding for Medicaid puts even more pressure on state governments to support the institutions and providers who care for some of the most vulnerable patients, said Stacy Paterno, executive vice president of the Rhode Island Medical Society.
“Hospitals aren’t a public utility but they’re the closest thing to a public utility that the state has,” Paterno said. “That needs to be reflected in state funding.”
Especially because hospitals are arguably one of the only businesses that don’t turn away customers — in this case patients — due to their inability to pay.
“There’s relatively few businesses you can think of where you have to bake in caring for people who aren’t able to pay,” Hackey said.
On the other hand, state funding and patient revenue are not the only ways hospitals can make money, said Hensley-Quinn. They include stock investments, real estate and a host of federal grant programs, including the signature congressional drug pricing program 340B, which lets healthcare providers like hospitals buy discounted drugs from manufacturers but receive insurance reimbursement based on the full price.
“Perhaps changing reimbursement rates for one budget year is the contribution they are going to have to make,” Hensley-Quinn said.
Tomasso sees it differently.
“We shouldn’t be cutting from our hospitals to close a budget gap,” she said.
House Speaker K. Joseph Shekarchi and Senate President Dominick Ruggerio in a joint emailed statement said they were “keeping an open mind” regarding the governor’s proposed funding for hospitals, awaiting public hearings in both chambers before drawing further conclusions.
This story was originally published by the Rhode Island Current.
