For-profit hospital executives breathe easier as budget cuts soften

The quickly evolving budget reconciliation package advancing in Congress is drawing much less concern from for-profit hospital executives.

The House passed the reconciliation package May 22, 215-214, and it now goes to the Senate for consideration over the summer.

The bill’s provisions with the biggest potential hospital impacts included:

• Requiring able-bodied non-elderly adult enrollees to work, attend classes or volunteer 40 hours each month
• Repealing 2024 regulations to streamline eligibility and enrollment
• Restricting new provider taxes that fund state-directed payments (SDPs) in most states
• Reducing retrospective payments from three to one month

But hospital executives recently described those changes as significantly less worrisome than Medicaid changes proposed earlier in the legislative process.

The reconciliation bill was “coming out more in line where we expected it to be, which was not near as bad as maybe some had predicted,” Kevin Hammons, CFO of Community Health Systems (CHS), said at a May 21 RBC Capital Markets conference.

“The negative impacts of the bill, potentially, are less dramatic and draconian perhaps than some thought they could be,” Steve Filton CFO, Universal Health Services (UHS), said at the same conference.

“We knew there would be changes but the changes that have been proposed would be largely incremental: work requirements, eligibility checks,” Marty Bonick, CEO of Ardent Health Services (AHS), said at the same conference. “Put these together and we’ll see something, which will certainly be change but something we can absorb.”

Their views were in sharp contrast from those of hospital advocates, including the Federation of American Hospitals (FAH), which represent for-profit hospitals.

“The House budget reconciliation bill fails this test with devastating Medicaid cuts — including caps on provider taxes and state-directed payments — that will hand tie states’ abilities to fund their Medicaid programs, cause millions of Americans to lose coverage, and be a death knell to critical hospital services and entire communities’ access to care,” said Chip Kahn, president and CEO of FAH.

When the Senate takes up the bill, the healthcare provisions may be further whittled down, said the executives.

“Our view is still that by the time it gets through the Senate it gets no worse than it is today,” Hammons said. “That’s very favorable for the providers and it’s possible the bill moderates even more before it goes to the president’s desk for his signature.”

Bonick also noted that the healthcare provisions are phased in, with some not going into effect until 2029.

“These things aren’t going to happen right away and will be much more incremental,” Bonick said.

SDP limits

The cap on new SDPs, also known as the Directed Payment Program (DPP), has drawn the most concern from hospital executives. However, they were relieved that existing SDPs would remain at their current funding levels, currently proposed SDPs would be grandfathered and future SDP reapprovals may include inflation-related increases. SDPs totaled more than $110 billion annually as of August 2024, according to a report by the Medicaid and CHIP Payment and Access Commission.

“Maybe going forward [there will be] some limitation on SDP growth,” Hammons said. “But we don’t see any of them being pulled back.”

Filton credited Republican governors and legislators with pressuring congressional Republicans to drop earlier proposals to deeply cut or eliminate SDPs. He acknowledged that some congressional Republicans could push it to revisit SDP legislation in the future.

“But you see how much Republicans are struggling to pass this one bill,” said Filton. “It’s hard to imagine much more gets done beyond this.”

SDPs advance

The bill’s focus on SDPs came as the Trump administration appeared to restart approvals for new SDPs.

CMS recently provided partial approval of a SDP for Tennessee, although final approval of the state’s 1115 waiver remains under consideration.

Hospital associations in at least 10 states said CMS had been unusually slow in processing SDP applications since the fall of 2024, according to the Wall Street Journal (subscription required). 

“So, after a little lull in the change of administration, now that CMS and HHS cabinet chairs have been installed, we’re starting to see those approvals flow and so we’re fully expecting to see those things continue to flow on in 2025,” Bonick said.

Work requirement effect

The executives also expected little effect from the institution of Medicaid work requirements.

“Net-net, we’d probably see that, as worst, as neutral to us — potentially even slightly positive,” Hammons said about the work requirements. Positive effects could come from the requirement pushing some enrollees toward hospital employment — where labor demand remains high — and some gaining employer sponsored insurance from a job.

Filton said his organization was expecting work requirements targeted at a Medicaid population of younger, healthier male enrollees.

“I’m not sure that’s the population that makes up the bulk of our hospital utilization,” he said.

Bonick said that since some data indicate 92% of Medicaid enrollees already work, he didn’t expect major impact from the work requirements.

He cast doubt on Congressional Budget Office (CBO) projections that the bill would increase the number of uninsured by at least 7.6 million by 2034. His doubts were based on CBO projecting Medicaid unwinding in 2023 to 2024 would increase the number of uninsured by 6.2 million, but the uninsured rate increased only two-tenths of one percent in that time.  

“There was a lot of hysteria around that topic this time last year and largely what happened was those patients that were receiving Medicaid reenrolled in Medicaid, aged into Medicare, some did disenroll and other found commercial insurance which was better,” Bonick said. “So, it was a slight tailwind for us.”

Likewise, Filton cited a recent reapproval of a Nevada SDP as “an overall sign that CMS was prepared to approve these programs in the normal course and the pipeline of programs remaining to be either re-approved or newly approved would continue.”

He said it remains to be seen whether new approvals and reapprovals will fit within the grandfathering language of the reconciliation bill and whether they will include inflationary increases.

“It appears the congressional intent is to cap the growth of these programs, but whether that is on a percentage of provider tax or an absolute reimbursement amount, etc., is an open question,” Filton said.

The bill’s journey

The bill has evolved as it has moved through the House. Initially a broad range of healthcare policy changes were proposed, including more than $1 trillion in various options to cut future Medicaid spending growth.

But many fewer cuts were included in the primary healthcare portions of the budget reconciliation bill that was approved by the Energy and Commerce Committee on a party-line 30-24 vote May 14. Separate healthcare provisions, including some to expand the use of health saving accounts and health reimbursement arrangements, were included in the portion of the reconciliation advanced May 14 by the Ways and Means Committee.

On May 18, the Budget Committee approved the overall bill and then the Rules Committee approved it with further changes May 21 before it advanced to a full vote on the House floor.