Hospital CEOs prep for 'devastating' Medicaid cuts

Medicaid is under scrutiny as Republican lawmakers eye big healthcare budget cuts for this year.

As President Donald Trump took office Jan. 21, the lawmakers proposed reducing the ACA's Medicaid expansion match and lowering the Federal Medical Assistant Percentage floor below 50%. They also pitched a per capita cap that would transition Medicaid payments to a population-based model instead of the open-ended entitlement. The lawmakers estimated these changes could save $2.3 trillion.

But the cuts would come at a cost to hospitals. CEOs, particularly leaders of safety-net hospitals, are anxious about the future.

"We are concerned, just like the rest of the hospital field is today, with trying to gauge what the new administration will look like in terms of the Medicaid policy in particular," said Steve Purves, CEO of Valleywise Health in Phoenix, during an upcoming episode of the "Becker's Healthcare Podcast." "And what's going to happen with the Affordable Care Act. As a safety net hospital, we rely to a significant extent on Medicaid funding."

Around half of Valleywise's revenue comes through Medicaid or supplemental funding to support the system's teaching program and provide services to uninsured or underinsured patients.

"Anything that happens to Medicaid or a reduction in federal funding for Medicaid programs has a significant adverse impact on our financial status," said Mr. Purves. "We're very concerned about what we're hearing about Medicaid cuts, especially to safety net hospitals."

Many of the patients at Valleywise also rely on health insurance exchange plans to obtain affordable insurance coverage. If the administration reduces subsidies for people purchasing plans on the exchange, a portion of those patients will become uninsured because they earn too much money to qualify for Medicaid but can't afford premiums for health insurance without assistance.

How can CEOs plan for an uncertain future when big changes to Medicare and federal assistance programs loom?

"We're going through a constant planning exercise," said Mr. Purves. "We obviously have our long term strategic plans, our three-year plans, and annual implementation plans. But the planning process with respect to our financial standard stability, is a constant, iterative process. It goes without saying that we have to live within our means and we have to analyze what we need to do in order to continue to sustain operations should major supplemental funding sources dry up."

Valleywise wouldn't be able to provide the same breadth and depth of services without additional financial support. Mr. Purves said his team evaluates what programs and services have the most positive impact on the community and consider their cost and amount of subsidies they require.

"If we have shortfalls, we have to balance the need in the community with the financial resources to deliver that care," he said. "We have plans going forward that will be responsive to whatever comes down the pike with respect to especially Medicaid and other supplemental funding sources. We also focus a lot on our philanthropic community."

Valleywise has a robust philanthropic backbone with the Valleywise Health Foundation where individual community members financially support the institution.

"We are really focused a lot on generating that philanthropic support and especially over the last several years, we've made significant gains in the amount of philanthropy coming into our system," he said.

Baystate Health in Springfield, Mass., is in a similar position. The system's patient population is around 70% Medicare and Medicaid beneficiaries. Financial stability depends on government payers, and rates could be cut at any time.

"To better manage that reality, our longer term strategy will be leveraging our provider-owned health plan, Health New England, to better align our financing model with our care model, with tailored 'wrap around' approaches to address the unique needs of specific populations and individuals," Peter Banko, president and CEO of Baystate Health, told Becker's. "The proposed Medicaid cuts would be devastating to all providers in Massachusetts and, specifically, Baystate's role in our community as an academic, safety net integrated system."

Baystate is in the midst of a $225 million-plus core operations transformation that will continue regardless of Medicaid changes. Mr. Banko said the team is "turning over every stone" in workforce, supply chain, revenue cycle, clinical operations, physician enterprise and strategic growth to optimize operations in the future.

"The aspirational work is driven by our challenging market environment, stagnant population and continuous payer mix shift toward government payers," said Mr. Banko.

If the Medicaid cuts occur, the leadership team would mull taking more drastic action to preserve operations and access to care.

"On top of the existing transformation workstreams, we would have ot consider additional radical steps to, at minimum, move towards Medicare profitability to make up for additional underpayment for Medicaid," said Mr. Banko. "These drastic moves could include exiting unprofitable service lines, reducing teaching and research, minimizing physician enterprise investments, or downsizing our workforce, understanding we are the major employer and economic pillar in Western Massachusetts."

For some safety net hospitals, navigating new cuts is just the next chapter in an ongoing struggle to stay financially viable. Ngozi Ezike, MD, president and CEO of Sinai Chicago told Becker's nearly two-thirds of the hospital's patient population utilizes Medicaid, and since the system doesn't turn anyone away each year they provide more than $50 million in uncompensated care annually.

"In the end, the math simply doesn't work to make us whole and we end up losing money every year," she said. "In 2025, we're focusing on finding ways to fill the gaps so we can get to financial stability while continuing to provide the charity care needed in our communities."

Like Mr. Purves, Dr. Ezike is expanding ties with philanthropic initiatives and creating partnerships with better resourced systems. Sinai Chicago is also identifying ways to become more cost-effective and efficient.

"These are difficult needles to thread, but our leaders and caregivers are committed to our mission that healthcare is a right for all," she said.

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