DPHHS reports $34.4 million shortfall in interim budget committee

The Montana Department of Public Health and Human Services is projecting a budget shortfall of $34.4 million, staff told an interim budget committee this week.

Staff at the department are preparing a supplemental budget request, plan to dip into state special funds to cover the shortfall, and hope to avoid Medicaid provider rate cuts, they said during the Health and Human Services interim budget committee meeting. 

Four areas were identified by staff as shortfalls, with three relating to Medicaid: shortfalls in federal funding, state special funding and the general fund. Additionally, funding for the health care facilities division, which includes Montana State Hospital, was cut by $15 million in fiscal year 2026 and $20 million in 2027 after a last-minute House Bill 2 amendment. Some legislators during the 2025 Legislative session called to break up DPHHS and accused the agency of overspending.

The shortfall did not surprise DPHHS head Charlie Brereton.

“I feel like we’ve warned over and over that this was a possibility and likely a reality,” Brereton said. “And here we are today.”

There were multiple factors that created the shortfall, including taking a Legislative Fiscal Division projection over one from DPHHS related to Medicaid caseload projections.

Both the department and LFD estimate what they anticipate Medicaid expenses to be for the upcoming biennium, and a Legislative committee then has the option to look at those estimates, Natalie Smitham, the Chief Financial Officer at DPHHS, told the committee at the Tuesday meeting. 

“LFD’s estimates were lower than the estimates put forward by the Department, and those were the ones that were adopted,” Smitham told the committee. “Projections or actual expenses for the Medicaid program essentially came in higher than those projections that were adopted.”

Rep. Jane Gillette, the chairperson of the committee, said “we knew there was a risk,” adding that the rush to finish the session and pass a “balanced budget” also partly created the situation. Provider rates were also increased.

“We were trying to get a balanced budget so that we could pass it, like, leave and go home and pretend we passed a balanced budget,” Gillette, a Three Forks Republican, said.

In response to the funding shortfall, Smitham explained how they were planning to use some state special funds to cover costs for fiscal year 2026 and then ask for more money for the 2027 fiscal year. Because the supplemental budget request is being asked for now, DPHHS is also statutorily required to show its own cost-saving measures.

Brereton said he’d like to avoid cuts to provider rates. Nursing homes and youth group homes are among providers who utilize Medicaid.

“While I absolutely cannot guarantee this on the record on the spot today, what we would love to do is maintain provider rates where they’re at and do everything in our power to prevent rate cuts,” Brereton said, adding they are considering foregoing “an additional rate increase in the second year of the biennium in an attempt to prevent system-wide destabilization.”

Other options are also being considered, Smitham told the committee.

“Our plan to address those shortfalls and meet that statutory requirement is to consider not implementing provider rate increases in fiscal year 2027,” Smitham said, adding they “will also consider the reduction, suspension or elimination of optional benefits in the Medicaid program.”

They’re looking at all provider types, Smitham said, who added “no decisions have been made” regarding who would be impacted.

Rep. Mary Caffero, a Helena Democrat who has advocated for years for Montanans who rely on Medicaid, told the committee the shortfall was “a bomb.”