Federal officials said the regulation simply clarifies what Medicaid -- the federal-state program to provide healthcare for those with low income -- will pay for, The New York Times reported. But hospital and state officials said that the change is another financial blow.

"This is a disaster for safety-net institutions like ours," said John W. Bluford III, president of Truman Medical Centers in Kansas City, Mo. "The change in the outpatient rule will mean a $5 million hit to us. Medicaid accounts for about 55 percent of our business."

The administration is expected to issue many similar rule changes before President George W. Bush leaves office in January. In May, officials said they wanted to avoid the kind of "midnight regulations" issued by previous administrations.