Neighbors proposes law to let hospital-affiliated groups draw $29M annually in federal Medicaid payments for physician services

Rep. Amy Neighbors introduced House Bill 689 to the Kentucky Medicaid Oversight and Advisory Board, saying the measure would authorize a state-directed payment program allowing hospital-affiliated physician and nonphysician professional services to receive enhanced Medicaid reimbursement. Neighbors said the program is intended to strengthen access to care in rural and underserved communities, support physician workforce retention and align reimbursement with quality metrics.

Neighbors told the board HB 689 would direct the Department for Medicaid Services to seek Centers for Medicare & Medicaid Services approval and, if approved, implement the program beginning Jan. 1, 2026, with retroactive payments for that calendar year. She said the mechanism would not require state general fund dollars and estimated the program could bring about $29,000,000 per year in new federal Medicaid dollars to Kentucky by allowing qualifying hospitals to receive enhanced payments for professional services they currently do not receive.

Russ Rinalo, chief financial officer at Owensboro Health, and Dr. Heidi Murley of St. Elizabeth Healthcare described local impacts: each said their systems subsidize physician practices to maintain services in rural counties and that the proposed mechanism would help sustain access without relying on state general revenues. Rinalo said Medicare payments have declined relative to costs and that hospitals are subsidizing salaries and malpractice, while Murley said her system serves as a safety-net hospital in Northern Kentucky and that the funding would partially bridge current gaps in reimbursement.

Representative Wilner and other board members asked whether the proposal would cost the state general fund. Neighbors and a witness confirmed participating systems (including academic centers cited in testimony) would provide the state match and that the bill is intended to be budget-neutral to the general fund. Members urged the board to consider how to assist providers who would not benefit under the proposal.

Chair Ken Fleming told the board Neighbors’ presentation had passed the House Health Services committee unanimously prior to this meeting. The board did not take a formal vote at this session; the presentation and discussion were advisory and informational.

The bill’s sponsors described quality metrics and compliance with federal rules as conditions of participation. Board members said they would follow up on operational details and on ways to support other systems that may not be eligible under the proposal.