Senate Parliamentarian Elizabeth MacDonough has rejected key Medicaid provisions in the Senate GOP megabill, a ruling that appears to strike a major blow to Republicans’ strategy for cutting federal spending.

The Senate’s referee rejected a plan to cap states’ use of health care provider taxes to collect more federal Medicaid funding, a proposal that would have generated hundreds of billions of dollars in savings to offset the cost of making President Trump’s corporate tax cuts permanent, according to a Democratic summary of the parliamentarian’s ruling.

The decision could force Senate Majority Leader John Thune (R-S.D.) to reconsider his plan to bring the Senate bill up for a vote this week.

The cap on health care provider taxes in both states that expanded Medicaid and did not expand Medicaid under the Affordable Care Act was projected to save hundreds of billions of dollars over the next 10 years, but it would have forced states to shoulder substantially more of the cost for Medicaid coverage.

The provision generated strong pushback from several Senate Republicans, including Sen. Josh Hawley (R-Mo.), Susan Collins (R-Maine), Lisa Murkowski (R-Alaska) and Jerry Moran (R-Kan.), who warned deep cuts to federal Medicaid spending could cause dozens of rural hospitals in their states to close.

Hawley and Collins declined to say Wednesday whether they would vote to proceed to the bill unless Senate Republican leaders came up with a plan to save rural hospitals from bankruptcy.

Sen. Jeff Merkley (D-Ore.), the ranking Democratic on the Senate Budget Committee, hailed the ruling.

“Democrats are fighting back against Republicans’ plans to gut Medicaid, dismantle the Affordable Care Act, and kick kids, veterans, seniors, and folks with disabilities off of their health insurance – all to fund tax breaks for billionaires,” Merkley said in a statement.

“Republicans are scrambling to rewrite parts of this bill to continue advancing their families lose, and billionaires win agenda, but Democrats stand ready to fully scrutinize any changes and ensure the Byrd Rule is enforced,” he said.

The parliamentarian ruled that Sect. 71120 of the bill covering health care provider taxes violates the Byrd Rule, which determines what legislation is eligible to pass the Senate with a simple-majority vote on the budget reconciliation fast track.

Republicans could get around the parliamentarian’s rulings by holding a simple-majority vote on the floor to establish a new precedent, expanding the scope of what is eligible under reconciliation.

Or they could attempt to rewrite the cap on health care provider taxes in a way that it meets the parliamentarian’s approval.

But the parliamentarian’s decision appears to be a significant setback that could delay a vote on the bill.

A Republican source familiar with the parliamentarian’s ruling, however, pushed back on claims that it would force GOP leaders to pull a key pay-for from the bill.

“We’ll continue our work and find a solution to achieve the desired results,” the source said. “This is not as fatal as Dems are portraying it to be.”

The parliamentarian also rejected an array of other Republican provisions in the GOP bill to restrict Medicare and Medicaid coverage of immigrants who are not citizens, a top priority of Senate and House conservatives.

Specifically, MacDonough ruled against a section of the Senate bill to revoke Medicare eligibility for many immigrants who are not citizens, including refugees, asylum seekers and people in the country with “temporary protected status.”

The proposal would bar refugees and asylum-seekers from enrolling in Medicare even if they have sufficient work history, pay into the Medicare program and meet age and disability requirements.

In addition, she rejected a section of the bill to prohibit the federal funding of Medicaid and the Children’s Health Insurance Program (CHIP) for adults and kids whose citizenship or immigration status cannot be immediately verified, language that would override the existing 90-day “reasonable opportunity period” allowing states to provide coverage while they verify a patient’s immigration status.

The parliamentarian rejected a section that would lower the Federal Medical Assistance Percentage grant from 90 percent to 80 percent for states that use their own funds to provide Medicaid coverage to immigrants in the country illegally. It would apply to states that expanded Medicaid coverage under the Affordable Care Act (ACA).

MacDonough also ruled against a provision prohibiting federal Medicaid and CHIP funding for “gender-affirming medical care.”

Updated at 10 a.m.