Dr. Thomas Hoffeld, chief of staff at the Spanish Peaks Health Center, speaks with a patient covered by Medicaid on August 5, 2009 in Walsenburg, Colo.
Dr. Thomas Hoffeld, chief of staff at the Spanish Peaks Health Center, speaks with a patient covered by Medicaid on August 5, 2009 in Walsenburg, Colo. - 
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Steve Chiotakis: The Obama administration will officially propose tomorrow a rule that would make it more difficult for states to cut Medicaid payments to doctors and hospitals. So how will states balance their looming Medicaid costs?

From the Marketplace Health Desk at WHYY in Philadelphia, Gregory Warner explains.

Gregory Warner: There are really three ways that a state can trim its budget for Medicaid, the health care program for the poor. It can kick people out of the program. It can refuse to pay for expensive benefits like transplants and cancer drugs -- but that doesn't play well politically.

Peter Ubel: Who wants to be accused of rationing care? The R-word is a dirty naughty word in health care.

So Peter Ubel, who teaches health policy at Duke University, says states often rely on a third way to tame their Medicaid budgets: paying doctors less.

Ubel: That just doesn't look so bad to the general public. You're just making a tough fiscal decision and now it's up to the doctors to decide whether to care for those patients.

Geoffrey Simon: The problem with that is you have to pay your employees.

Geoffrey Simon is a pediatrician in Atlanta, Ga., where Medicaid pays less than half of private insurance rates. That's a business loss for him, he says. Like other pediatricians, he no longer accepts those kids as patients.

Simon: So, where do they go? They go to the emergency room, the most expensive place to receive care.

Tomorrow, the Obama administration will propose a rule that would require states to prove that lowering doctors' fees doesn't limit patients' access. It would make the process of cutting fees more public.

Jeff Smith is with the consulting firm The Lewin Group. He says states would have to:

Jeff Smith: Go out and survey the beneficiaries, canvas the providers, have public forums and have a transparent process.

Bruce Greenstein is secretary of the Louisiana Department of Health and Hospitals, which runs Medicaid in that state.

Bruce Greenstein: This rule gives the federal government the ability to hold states hostage.

He says the federal government could stop states from cutting doctors' fees, but states still have to balance their Medicaid budget.

Greenstein: You would be squeezing one side of the balloon to only see the other side of the balloon expand.

In 2014, the health care law will make it a lot easier to sign up for Medicaid, and 17 million Americans without insurance are expected to enroll. Then if states can't pay doctors less, that still leaves that dirty naughty decision to make: which treatments will they stop paying for?

In Philadelphia, I'm Gregory Warner for Marketplace.

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Follow Gregory Warner at @radiogrego