Children’s hospitals’ worries show broad reach of Medicaid cuts

Modern Healthcare – Wednesday, July 9, 2025
By Caroline Hudson

Children’s hospitals say the trickle-down effects of reduced Medicaid funding due to the recently passed healthcare cuts will hit one of the most vulnerable populations the program was built to protect.

Medicaid changes in the law President Donald Trump signed Friday weren’t aimed directly at children enrolled in the program. However, leaders at children’s hospitals say new limitations on state-directed payments and provider taxes will put a dent in revenue and could force them to cut services.

The effects on children’s hospitals will go on to negatively impact adult providers as well, leaders said. Medicaid cuts will be keenly felt by the children’s hospitals since a large percentage of patients at those facilities, often more than 50%, rely on Medicaid.

The new law delivers roughly $1 trillion in cuts to healthcare programs over the next decade, much of which will come from federal Medicaid funding. The changes will go into effect over the next couple of years.

The Trump administration and most Republican legislators framed the steep Medicaid cuts as a way to eliminate fraud and abuse in the system and to preserve funds for the populations who really need it, including children.

Children’s hospitals see the cuts differently.

“Whether you’re a political blue state or a political red state, I think all the children’s hospitals across the country now are going to be looking at what we can and can’t continue for every child. It’s a disappointing situation,” said Dr. Tom Shanley, president and CEO at Lurie Children’s Hospital.

Healthcare leaders said one big sticking point is the new restrictions on supplemental Medicaid reimbursement, which has served as a lifeline for many hospitals already losing money on caring for patients covered by the government program. For example, state-directed payments allow states to require health plans reimburse providers at a certain rate, closing pay gaps between Medicaid and other payers. Provider taxes allow states to charge providers fees and use the money to help fund Medicaid services.

Under the law, new state provider taxes are banned, and existing taxes are reduced to 3.5% of a provider’s net patient revenue over several years. State-directed payments are limited to 100% of Medicare rates for expansion states and 110% for nonexpansion states.

The payments Phoenix Children’s receives from Medicaid managed care organizations covers 72% of the cost to provide care. Supplemental payments bring coverage closer to 90%, said President and CEO Bob Meyer, who is retiring this summer and will be succeeded by John Nickens.

“[Supplemental reimbursement] gets us to the point where we can actually treat Medicaid patients, not discriminate against them, and provide full services,” Meyer said. “We’re out of business if we have to go back to 72% of costs. I’m being that frank about it.”

About 65% of patients at Phoenix Children’s are enrolled in Medicaid.

Meyer estimates a $75 million reduction in Medicaid reimbursement each year due to the recent changes. He said Phoenix Children’s will try to make up for the lost funding through efficiency measures, such as using artificial intelligence to streamline administrative tasks.

Chicago-based Lurie Children’s faces a similar funding crunch.

Nearly 60% of the hospital’s inpatients are enrolled in Medicaid, and about one-third of its hospital revenue comes from the program, Shanley said.

Shanley said Lurie Children’s is conducting a clinical program review to see if the hospital needs to scale back programs or discontinue them. He said wraparound programs including family support, behavioral health services and interpreter services could be affected.

The effects of reduced funding will be felt beyond Medicaid enrollees, he said.

“We’re not going to be discontinuing programs that are only for Medicaid kids. They’ll be programs that will impact every kid, whether you’re commercially insured, whether you’re Medicaid insured or whether you’re [Children’s Health Insurance Program] insured,” Shanley said. “I think Congress in general has forgotten the mission of the Medicaid program.”

The cuts could limit the number of clinicians and care sites at Cincinnati Children’s Hospital or affect its specialty programs, said Dr. Tina Cheng, chief medical officer at Cincinnati Children’s and pediatrics chair at the University of Cincinnati School of Medicine. She also noted mental health programs and social services as areas that could be affected.

About half of the hospital’s patient population relies on Medicaid, Cheng said.

She also said the implementation of more frequent Medicaid eligibility checks often leads to adults and children dropping off the rolls due to the bureaucratic burden.

Some hospitals didn’t wait for the bill to pass before they took action.

Children’s Hospital Los Angeles, which gets more than two-thirds of its annual revenue from Medicaid, implemented a non-clinical hiring freeze in the spring, delayed capital projects and added $100 million to its balance sheet through a bond offering to prepare for the coming reimbursement cuts. More than 70% of the hospital’s patients rely on Medicaid coverage, CEO Paul Viviano said.

Viviano said one of his top concerns is reduced access to care, which can manifest as longer wait times for emergency care and ambulatory appointments.

“Not only are we experiencing short-term operating pressures, but longer term, those will increase every year as inflation continues to grow,” he said. “There’s a political debate that goes on, and in this case, it was divorced from the reality.”

Healthcare executives warn Medicaid cuts at children’s hospitals could have broader consequences for the industry.

As Medicaid funding is reduced, funds to support graduate medical education could be at risk amid an existing shortage of pediatric specialists. Hospitals rely on funding from the Children’s Hospitals Graduate Medical Education Payment program to train students in pediatrics, but it doesn’t cover the full cost of training, Cheng said. Children’s hospitals pull from other sources to supplement the CHGME program.

Ultimately, cuts to children’s care can lead to more problems in adulthood and negatively impact adult care providers as well, executives said.

Less access to care often leads to poorer health outcomes in children and adults due to delayed care. Many patients choose not to seek care at all, and some end up in expensive emergency situations with providers bearing the cost burden.

“I don’t think Medicaid is just a health insurance program. It’s really an economic development program,” Cheng said. “We need healthy children if there are going to be healthy adults.”

Access this article at its original source.