Hospitals seek to mitigate $1.1 trillion in federal healthcare spending cuts

Despite hospitals and health systems facing large federal funding cuts from the recently enacted reconciliation law, advocates and observers agree there will be ample opportunities to mitigate them.

The One Big Beautiful Bill Act (OBBBA) and its $1.1 trillion in 10-year federal healthcare spending cuts managed to get signed into law, despite concerted efforts from hospitals and their advocates to strip out those cuts.

For example, the American Hospital Association and 21 state hospital associations spent $8.5 million lobbying Congress in the first quarter of this year, which was the most spent they spent in a first quarter since quarterly tracking started in 2008, according to analysis by OpenSecrets.

But extended implementation time frames and early indications from members of Congress raise the possibility those cuts will not go into effect.

“While this has passed, we know that there are still opportunities to maybe rethink some of those approaches,” said Paulo Pontemayor, senior director of government relations at the Catholic Health Association.

However, since the cuts related to provider taxes and state-directed payments (SDPs) were priorities of the Trump administration, it may take a new administration to roll them back, said Matthew Fiedler, a senior fellow at The Brookings Institution.

Beyond Congress, other factors also may lower adverse financial effects from the law.

Rollback efforts

Much of the healthcare savings in OBBBA came from tighter Medicaid enrollment standards and work requirements, according to the latest estimate from the Congressional Budget Office. But significant 10-year savings, according to CBO, will come from provisions with more of a focus on hospitals and health systems, including:

• $191 billion from restricting provider taxes
• $149 billion from restricting SDPs
• $7 billion from requiring Medicaid copays

However, several bills were introduced in the immediate aftermath of the July 4 signing of the reconciliation law to roll back healthcare provisions. Those included legislation from Sen. Josh Hawley (R-Missouri) to eliminate the law’s provisions on provider taxes and SDPs and double the $50 billion fund for rural providers.

“There is significant interest in Congress in ensuring that as they look at the implementation dates of this package and finding ways to ensure that as they learn more and more about the implications; they want to mitigate that,” said Stacey Hughes, executive vice president for government relations and public policy for the American Hospital Association (AHA).

Benedic Ippolito, a senior fellow at the American Enterprise Institute, said it is possible that in the coming years Congress will rollback the Medicaid cuts and make permanent the rural provider fund.

“Maybe that [fund] continues on in perpetuity and some of these other things that were going to hurt hospitals fade away in future Congresses and they end up in a situation where they are better off,” he said.

Beyond congressional rollback efforts, some of the largest Medicaid cuts, such as implementing work requirements, may be mitigated through state efforts. For example, large Democrat-led states with the largest Medicaid enrollments will still have the majority of their costs covered by the federal government, said Ippolito.

“Many states have a really strong incentive to try to help people comply with those kind of requirements,” said Ippolito.

Lessons learned

Hospital advocates viewed OBBBA as an unusual bill because it was primarily a legislative effort to prevent the restart of $5 trillion in taxes and provide new tax cuts. Unlike other reconciliation bills it was accompanied by a desire to address some of the $36 trillion federal debt, which led to a requirement to include $1.5 trillion in cuts, or offsets.

Since President Donald Trump had taken Social Security and Medicare out of consideration as offsets, that left Medicaid to provide those offsets.

Fiedler said many Republican members of Congress wanted the tax cuts badly enough that they were willing to accept the healthcare provisions, which they otherwise would have opposed. The Trump administration also was successful in framing the bill to Republican members of Congress as a way to fight healthcare fraud, waste and abuse, he said.

Hospital advocates were successful in preventing the inclusion of much deeper cuts considered earlier in the legislative process, such as rolling back the higher federal match for the Medicaid expansion population, Pontemayor said.

“I personally think the hospital voice was very effective to ensure that members understood the implications around the displacement of covered lives and individuals with the uninsured status, that again will further crowd and strain our ability to care for everyone, not just for Medicaid beneficiaries,” Hughes said.

But some industry executives and observers wondered why national hospital advocates did not offer more compromises. For example, 13 state hospital associations had lobbied the Senate to accept the version of the bill initially passed by the House. That version had significantly lower cuts on Medicaid provisions related to provider taxes and SDPs.

Efforts to have local hospital executives highlight to the media the potential impact of the bill’s effects were overwhelmed by the fast pace of the legislation and used less as the legislation advanced, Pontemayor said. Faced with another reconciliation bill as soon as this year, his group plans to revisit that. “For this go around, now that we know what we’re up against, I think we will really make the local case front and center,” Pontemayor said. “When people start talking about that this is a large cut to the program, nationally, that takes away that local flavor and local impact for members of Congress, who at the end of the day are accountable to their states and their districts.”