The legislation seeks to clamp down on two tactics states use to boost Medicaid funding to hospitals: state-directed payments and Medicaid provider taxes. The restrictions are a major concern for rural hospitals, a key constituency for senators.
"Half of my hospitals in Missouri are rural. I don't want to see them close," said Sen. Josh Hawley (R-Mo.). "This [bill] is a mess. It needs a lot of work."
Hawley said he was taken by surprise by the change from the House-passed version. He said he spoke with President Trump on Tuesday, and the president was also unaware of the changes to the provider taxes.
The legislation would effectively cap provider taxes at 3.5 percent by 2031, down from the current 6 percent, but only for the states that expanded Medicaid under the Affordable Care Act.
The cap would be phased in by lowering it 0.5 percent annually, starting in 2027.
Non-expansion states would be prohibited from imposing new taxes, but as was true in the House-passed version, their rates would be frozen at current levels. The lower cap would not apply to nursing homes or intermediate care facilities.
Hospitals are pushing back hard.
"This bill would take away health insurance coverage for millions of beneficiaries, including those who rely on Medicaid for essential and mental health services, and jeopardize the health and economic stability of our communities," said Bruce Siegel, president and CEO of America's Essential Hospitals, which represents hospitals that serve primarily low-income patients.
Rick Pollack, CEO of the American Hospital Association, said in a statement the Senate Finance Committee draft would "further undermine the ability for hospitals to provide care to Medicaid patients."
All states except for Alaska finance part of their share of Medicaid funding through health care provider taxes, and 38 states have at least one provider tax that exceeds 5.5 percent, according to health policy research group KFF.
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