What Medicaid cuts hospital executives see as more likely

Health system leaders advocating to members of Congress said enrollee-focused Medicaid cuts are more likely at this point.

The Republican-led Congress is considering up to an $880 billion cut to the 10-year growth of Medicaid, as part of a tax cut extension package. It is not yet clear which specific policies Congress will use to obtain those savings, although Republicans have floated an extensive menu of options.

Health system executives, who have been part of the broad hospital lobbying effort to get Congress to minimize the impact on those organizations, said the outcome over the next few weeks or months remains uncertain.

“I suspect that where this lands will be somewhere closer to work requirements and possibly looking to tighten up enrollment standards for criteria and verification as the final opportunity here,” Saum Sutaria, CEO of Tenet Healthcare, said in mid-March at Barclays’ 27th Annual Global Healthcare Conference.

Requirements for able-bodied adult Medicaid enrollees to work, volunteer or obtain training would save the federal government $109 billion over 10 years, according to the Congressional Budget Office (CBO). Meanwhile, increasing front-end verification could provide substantial federal savings because enrollments of ineligible people in Medicaid was the source of 80% of the $50 billion in improper payments in the Medicaid system, according to fraud experts.

Marty Bonick, president and CEO of Ardent Health Services, agreed work requirements appeared to have the strongest chances of inclusion in the Medicaid cuts, at this point.

“We do hear from people in Washington that that probably has more legs to give the Trump 2.0 administration something to say, “Look we did something,’” Bonick said March 11 at Leerink Partners Global Healthcare Conference.

Steve Filton, CFO of Universal Health Services (UHS), said at Barclays that some tightening of state directed payments (SDPs) also is under consideration. SDPs are partially funded through provider taxes and CBO estimated federal savings of $48 billion to $630 billion over 10 years from restricting those taxes.

“But the expectation that if we have is any cuts and reform, they’re likely to be incremental rather than dramatic, more incremental than draconian, and likely to be over an extended time,” Filton said. “And that certainly allows us more time to react and manage through it, etc.”

Lobbying effort

Sam Hazen, CEO of HCA Healthcare, said March 11 at Barclays’ that hospital advocates have been urging Congress to avoid Medicaid changes seen as more harmful to health systems.

“Maybe [there are] some pathways forward that would be appropriate for Medicaid programs but would protect the industry in the ways the industry needs to be protected,” Hazen said.

A spokesperson for the American Hospital Association (AHA) declined to address any Medicaid changes it has urged to minimize adverse effects from federal Medicaid cuts.

“We’ve been clear that these proposed cuts would be devasting for patients and communities and that there’s a difference between making health care work better and simply cutting services that vulnerable people depend on,” said Colin Milligan, an AHA spokesperson. “We’ve been meeting regularly with congressional members to provide clear guidance on what these cuts would mean in real terms for patients, communities, and for the hospitals they depend on for care.”

Recently, more than 150 leaders from AHA member hospitals and health systems visited members of Congress to lobby on any Medicaid cuts.

Back up plans

In case Congress goes forward with major cuts to Medicaid, health systems have begun to prepare their financial responses.

Hazen, of HCA, said his health system is looking at cost responses, such as eliminating redundancies, if there are cuts to Medicaid coverage and reimbursement. The system is using lessons learned from the drastic changes that occurred during the COVID-19 pandemic, including communicating with their staff, looking at response options and preparing to execute quickly.

“We are getting prepared to offset as much of it as we can,” said Mike Marks, CFO of HCA.

Filton, of UHS, also said his organization is looking to the playbook they used at early stages of pandemic.

“We implemented a whole series of initiatives to respond to what at the time was a dramatic decline in volumes and demand,” Filton said. “We had some pretty significant layoffs, and we cut our overhead costs, we froze wage increases and 401(k) matches and paused our dividend and reduced our capex plans. And all of those things are all on the table now.”

The challenges are a little different with Medicaid cuts, he said, because “in theory the demand doesn’t change but just the reimbursement changes.”

“Here we would have a lot more time to react,” Filton said. “It would be a little more deliberate. At that point [during the pandemic], we were literally making these changes in real time and on the run.”

Filton said the Trump administration has paused the annual reapprovals of SDPs, while it brings new staff onboard.

“The feedback CMS gives the states, who they regularly communicate with, is that they believe these programs meet the requirements, they’ve been approved before, they will likely be reapproved, although they don’t necessarily provide a time estimate of when that’s exactly going to be in terms of when the new political appointees are in place,” Filton said.