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U.S. proposes rule on Medicaid payment cuts for hospitals

(Reuters) - The U.S. government on Monday issued a proposed rule for cutting payments to hospitals that treat a disproportionate share of the poor, including a $500 million reduction in fiscal 2014, as part of President Barack Obama's healthcare reform law.

The Patient Protection and Affordable Care Act mandates annual reductions in Medicaid payments to hospitals through fiscal 2020 in exchange for increased insurance coverage options that are expected to reduce levels of uncompensated care. The payment cuts increase each year.

Analysts said the size of the reductions over the next three years was manageable for U.S. for-profit hospital companies and noted the rule does not penalize states that have opted out of an expansion of the Medicaid program to cover more low-income Americans.

"They left the door open for states that have not agreed to Medicaid expansion yet without penalizing them for it," said Jefferies analyst Brian Tanquilut.

However, the trade group representing public hospitals that primarily care for low-income patients urged that the cuts be delayed until the impact of Medicaid expansion on the uninsured becomes clearer.

"The Affordable Care Act's disproportionate share hospital reductions are neither justified nor sustainable," the National Association of Public Hospitals and Health Systems said in a statement.

Monday's proposed rule was issued by the Centers for Medicare and Medicaid Services, the federal agency that administers Medicare, Medicaid and the State Children's Health Insurance Program.

The expansion of Medicaid under the reform law has been accepted by governors in about half of the 50 U.S. states.

CMS said it would seek comments from the public on the rule's provisions through July 12. Once finalized, the rule would take effect on October 1, unless Congress enacts the president's budget proposal to begin Medicaid reductions in fiscal 2015 instead of 2014, CMS said.

(Reporting by Susan Kelly in Chicago; editing by Matthew Lewis)

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