In an attempt to adapt to significant budget cuts, the Montana Department of Public Health and Human Services is proposing to reduce reimbursements to doctors and others who treat patients on Medicaid by nearly 3.5 percent.

Providers say that cut is too severe and an unfair way for the department to put the burden of belt-tightening disproportionately on them.

The state legislative committee that oversees the department will file a formal objection to the proposed cuts as well, saying it conflicts with how lawmakers intended the agency make ends meet.

The cuts are included in a proposed administrative rule. The health department will hold a hearing on the proposed rule this Thursday at 8:30 a.m. in Helena at 111 N. Sanders St. and is meeting with reporters Wednesday to discuss the cuts.

The department could have to reduce its budget by $14 million under a law passed by the Legislature this spring requiring mandatory cuts if state revenues came in below what was expected. An announcement is expected Tuesday on how severe cuts will be, but estimates show the state is down $65 million from projected revenue and agencies are preparing for the steepest level of reductions.

In a separate bill setting the agency’s budget, lawmakers also cut nearly $93 million because of less money flowing into the state from natural resource production.

The health department administers Medicaid payments in the state. Payments come from a mix of federal and state funds. Medical professionals and service providers who care for people with Medicaid have long said the amount they are reimbursed, which is lower than what is paid by private insurance, is not sufficient.

“No one expected this would come out of the providers’ budgets,” said Joshua Kendrick, chief executive officer for Opportunity Resources, which works with people who have disabilities.

Kendrick’s agency would lose $400,000 under the proposed rule, which could result in cutting jobs, he said Monday.

The cut would spread across a broad variety of providers who serve children and adults and would include almost all services covered under Medicaid. Mental health services and assistance for those with disabilities are also affected.

The proposed rule affects about 261,160 Montanans on Medicaid in addition to the providers who will get less money for services they perform.

Federally qualified health centers, rural health clinics, Indian Health Services and some tribal facilities are not included in the rate cuts.

Reimbursement rates would go down for physicians, outpatient services, rural critical access hospitals, dialysis, drug reimbursement, dental care, vaccines, home infusion therapy services, screenings and services for infants and babies, midwives, ambulance services, audiology services, occupational, physical and speech therapists, optometrists, chiropractors and lab and imaging fees and more.

Care for the elderly would be hit, including hospice, home health services and personal assistance services. About 7,600 Montanans received those services last year.

“This was really unexpected,” Kendrick said. “Everything we read in (the Senate bill) talked about the chance of a half-percent or 1 percent cut. So when 3.47 percent came out across all the services, we were really shocked. It was really unexpected. We were blindsided.”

Sen. Mary Caferro, a Democrat from Helena and chair of the Children, Families, Health, and Human Services Interim Committee that has oversight of the department, said Monday a majority of committee members will object to the rule at a meeting in September.

“We would like to have the opportunity to get clarity on these cuts from DPHHS and also to hear from Montanans as to their impact,” Caferro said.

Rep. Jon Knokey, a Bozeman Republican on the committee, opposes the rule.

“Very simply, absolutely unequivocally, this is not in line with the spirit of Senate Bill 261 (the bill calling for cuts) or House Bill 2 (the state budget bill). There is incredibly bipartisan support within the Legislature this is not at all what we intended.”

At a committee hearing in June, Bob Olsen, chief executive officer of the Montana Hospital Association, said the cuts are being unfairly put on providers.

“I’m afraid it’s coming back to, ‘When in doubt, just cut the provider rates,’ and it puts the onus on us both to bear the entire burden of the reductions,” he said.

The department is also making several other changes to meet the cuts. That includes ending before it even got started a program meant to open up 200 beds in nursing homes, ending the contract with the insurance company that administers Medicaid expansion, and a 0.5 percent reduction in general funds.

Cuts would also lower the budget for targeted case management services by $1 million and cut a position from the three-person board that monitors state-run mental health programs like the Montana State Hospital at Warm Springs.

The Legislature also approved a pay raise for direct care workers, which is unlikely to take place under the reductions.