Governor Larry Rhoden delivered his Budget Address today from the State Capitol, outlining a conservative spending plan shaped by flat revenues and rising mandatory Medicaid pressures. Medicaid now surpasses K-12 education as the largest share of the general fund—driven by $180 million in past provider rate increases, FMAP shifts totaling more than $100 million, Medicaid expansion costs, and higher service utilization.
Despite these cost drivers, the Governor is recommending keeping rates flat for the coming year. While the statutory formula calls for up to 3% funding for providers, education, and state employees, revenues did not allow an increase. Rhoden noted that over the past eight years, the “Big Three” received 6.2% more than required, though this year will bring no new discretionary support.
The budget does include $14.1 million in required Medicaid cost increases, tied to prescription drug inflation and Medicare crossover payments. These federally driven obligations do not translate into general provider rate relief.
Several additional health-related items were highlighted:
- Department of Human Services: Restores $16.4 million in ongoing funding after last year’s cut, responding to growing utilization.
- Offender Healthcare: $1.1 million increase to meet rising medical costs within corrections.
- Opioid Settlement Funding: $9 million for statewide prevention, treatment, and recovery initiatives.
- Broadband Expansion: $87 million in federal funding authority to continue high-speed internet expansion—critical for telemedicine and rural patient access.
A major opportunity on the horizon is the proposed $500 million federal “Rural Health Transformation” initiative, part of President Trump’s “One Big Beautiful Bill.” If approved, these funds could support long-term improvements in rural hospital stability, care delivery models, and infrastructure—potentially reshaping health care access across South Dakota.
For SDAHO members, this year’s budget signals ongoing financial pressure without a provider rate increase, even as workforce costs, inflation, and operational demands continue to rise. At the same time, major federal investments—if secured—may offer unprecedented opportunities for rural transformation.
Quote from SDAHO President/CEO Tim Rave
“Governor Rhoden’s address underscores both the challenges and opportunities facing South Dakota health care providers. While a zero-percent rate increase creates real strain for hospitals, long-term care, and assisted living providers, we appreciate the Governor’s acknowledgment of the rising mandatory costs within the system.”
“The potential $500 million rural health investment is especially significant. If approved, it could help stabilize rural facilities, modernize care, and strengthen access for families across the state. SDAHO will continue working closely with state leaders to ensure sustainable reimbursement and to maximize every opportunity to support our members and the patients they serve.”
Last, the Governor shared the budget maintains reserves at 12.5%, with $14 million unallocated. Those funds will remain on the bottom line for legislative priorities.
To view the Governor’s Budget address, visit governor.sd.gov or the archived video at sd.net.
