Communications Director, Connecticut Hospital Association
110 Barnes Road, Wallingford, CT
rall@chime.org, 203-265-7611
Modern Healthcare – Monday, January 27, 2025
By Alex Kacik
Health systems are bracing for potential Medicaid cuts they say could lead to service reductions and hospital closures.
President Donald Trump’s new administration and Congress are considering a slew of healthcare policy changes that aim to limit spending, predominantly by slashing Medicaid and Affordable Care Act funding. These proposals could lead to a spike in Americans without insurance coverage, threatening to increase providers’ uncompensated care costs and narrow hospital margins.
In response, health systems are looking to save money and prioritize other revenue sources to mitigate the impact of potential cuts. Providers plan to reduce operating expenses, grow through partnerships and mergers and acquisitions, lean more heavily on commercially insured services, boost employer-led contracting agreements and add staff to help patients find insurance coverage, executives said.
Still, the most financially vulnerable hospitals may not have these options and could not sustain an increase in the uninsured population, experts said.
“Hospitals will be at risk of closing and certainly along the way burning the furniture to keep the house warm by having to cut services,” said Michael Young, CEO of Temple University Health System, a safety net health system in Philadelphia.
The Trump administration is expected to support tying Medicaid coverage to employment. House Republicans this month drafted a list of legislative changes that would cull trillions of dollars from federal programs over a 10-year period to pay for tax cuts and stricter immigration oversight.
Health system leaders highlighted several of the most concerning proposals from Congress, including instituting Medicaid work requirements, eliminating enhanced federal payments for states that expanded Medicaid coverage, getting rid of supplemental Medicaid funding designed to bridge the gap between Medicaid reimbursement and treatment costs, and axing Medicaid coverage for immigrants lacking permanent legal status seeking emergency care.
Supplemental Medicaid funding known as provider taxes, which are administered through a complex system involving state-levied taxes on Medicaid providers and federal matching funds, have helped providers maintain services for low-income patients, Steve Harris, senior vice president of payor and government affairs at Tampa General Hospital in Florida, said.
“It would be devastating if that went away, not just for Tampa General, but for most hospitals in Florida,” he said.
Some health systems are changing their prospective budgets amid the looming cuts. Bryan Health, a nonprofit health system based in Lincoln, Nebraska, will not factor supplemental Medicaid funding tied to provider taxes into its long-term budget, Chief Financial Officer Michael Dewerff said.
“We try to take a conservative approach with those payments,” he said. “We know in the back of our mind we probably can’t count on those over the long term.”
In addition to the explicit proposals to cut federal healthcare programs, there could be some downstream impacts on healthcare providers related to non-industry-specific policy changes, such as immigration.
If, for instance, the Trump administration starts to deport immigrants in the country without legal permission who are family caregivers, those families may lean more heavily on healthcare providers, Thom Bales, health services advisory leader at consultancy PricewaterhouseCoopers, said.
Stricter immigration policies would further strain an industry that already manages persistent labor shortages, he said.
“There are all of the second-line impacts related to what happens because of tax changes, labor laws, immigration,” Bales said. “There is a lot of caregiving that happens off the radar.”
While the future of these proposals is uncertain, health systems are still gearing up for possible changes and looking for other ways to shore up their balance sheet.
Tampa General, for instance, will invest more in profitable services, partner with organizations to limit financial exposure and leverage technology to drive efficiency and reduce costs, executives said.
Bryan Health is also turning to clinical partnerships to diversify revenue. The health system in December announced a joint venture with Sanford Health designed to build out a Medicare Advantage network.
“It’s part of a broader strategy to get our costs down and also diversify revenue,” Dewerff said. “We’re trying to improve our commercial payer mix.”
Mergers and acquisitions may also be on the table as health system executives turn to scale as a financial buffer.
Sioux Falls, South Dakota-based Sanford Health, which recently completed its merger with Marshfield Clinic Health System in Wisconsin, will consider mergers, joint ventures and technology-driven automation to try to add revenue, lower its costs and improve operations, said Nick Olson, chief financial officer at Sanford.
“Strategic growth will continue to be part of our strategy and continue to be a way we combat enhanced ACA subsidies going away, changes to Medicaid funding or whatever the changes may be,” he said.