Why hospitals must prepare now for Medicaid cuts

Hospitals are looking at sweeping changes to Medicaid programs in the coming years, with less aid and millions of Americans are projected to lose coverage.

Starting next year, most Medicaid recipients will be asked to meet certain work requirements, and there will be more checks of eligibility. States also face new rules in how they finance their Medicaid programs in the coming years, which will likely lead to cuts in services and reduced enrollment, analysts say.

Hospital leaders have warned that the Medicaid cuts could lead to reductions of services and some facilities shutting their doors. This week, Public Citizen released a report that says 446 hospitals are facing a greater risk of closure or cutting services due to Medicaid cuts.

Rob Andrews, CEO of the Health Transformation Alliance and a former congressman from New Jersey, tells Chief Healthcare Executive® that the Medicaid cuts mean “the worst of both worlds” for hospital leaders.

“They have to continue to provide care to whomever comes into the emergency room, … but the revenue to support those patients isn't there,” he says. “And so I think that's an unfortunate but fairly permanent new reality.”

Industry leaders say hospitals need to be making plans now.

Anu Singh, managing director at Kaufman Hall, a healthcare consulting firm, says long-term healthcare strategies devised before President Trump signed the HR 1 tax package need to be revamped.

In a recent interview with Chief Healthcare Executive, Singh said, “Almost every single strategic plan should be reassessed around: What does this mean for us? What are the financial implications to this change?”

• Read more: Medicaid cuts could weaken services for those with Down syndrome

Making financial decisions

Some hospitals and health systems have already been making some plans, such as reviewing programs and even reducing their workforce.

Rick Pollack, president and CEO of the American Hospital Association, told Chief Healthcare Executive that he’s worried about some hospitals opting to reduce services to remain viable, and he says he’s worried about closures. He reiterated some of those concerns during a congressional hearing in March.

Pollack said that hospitals are examining different options.

“They're taking a look at different things in terms of where we provide the care for people,” Pollack says. “How can we work with other partners to make sure that not everyone ends up in the ED? What can we do to provide care for people with other partners, whether they’re community health centers or others, so that we catch people with conditions before they become exacerbated and before they become acute.”

Matt Cook, president and CEO of the Children’s Hospital Association, says he’s very concerned about the impact of Medicaid cuts on pediatric hospitals.

At many children’s hospitals, more than half of the patients are covered by Medicaid. While the Medicaid changes don’t call for any reductions in coverage of children, hospitals are bracing for less support from Medicaid, which Cook says is already inadequate.

“Children's hospitals are preparing for that, and so they're already making financial decisions today based on this expectation that implementation is going to carry forward and there is going to be a financial impact,” Cook tells Chief Healthcare Executive. “So they're already looking at ways to reduce costs, and I think that is problematic, because we'll see how much that impacts in terms of access to care.”

John Couris, president and CEO of Tampa General Hospital, told Chief Healthcare Executive in an interview at the ViVE conference that his system is focused on dealing with the new reality. Couris says the system is looking to leverage AI more effectively, and he sees more potential to expand hospital-at-home services.

He says it’s important to recognize that consumers aren’t getting the value they deserve from the healthcare system.

“If you don't like the results, change the design, change the processes, change the systems. And that's the attitude that we're taking,” Couris says. “So we will hit the cuts that come down for Medicaid … we will hit it head on. Better systems, better processes, different programs.”

Erik Wexler, president and CEO of Providence, says the Catholic health system has been weighing the impact of Medicaid cuts for months. He told Chief Healthcare Executive in a recent interview that Providence is looking to maintain core services to serve those most in need, but the system is also looking at cutting back services with low volume or ceding some services to other nearby hospitals.

“HR 1 is absolutely impacting our health system and all health systems across the country,” Wexler says.

More than a year ago, Wexler says, “We started doing scenario planning.”

“And a lot of that scenario planning, which we have now implemented, was to remove duplicative services across our footprint, so we have had the closure of labor and delivery programs where utilization was low,” he says.

Nicole Stallings, president and CEO of the Hospital & Healthsystem Association of Pennsylvania, said hospitals in the Keystone State are already facing financial pressures. Less than half of the state’s hospitals have operating margins needed to be sustainable, she says. Medicaid currently reimburses about 71 cents on the dollar, and that will drop to 64 cents when the HR1 package takes effect.

“All of our hospitals are evaluating a variety of scenarios and making plans which can include, unfortunately, service reductions, labor reductions, and even perhaps closure,” Stallings told Chief Healthcare Executive.

‘Systems don’t move overnight’

Hospitals are making preparations to deal with reduced Medicaid support, says Steve Wasson, chief data and intelligence officer for Strata Decision Technology.

“They're moving their operation in anticipation of looking closely at their service lines, which ones they need to move away from, potentially, or partner differently,” he said in a recent interview with Chief Healthcare Executive.

Even though health systems have some time to deal with the changes, they can’t afford to wait.

“These health systems don't move overnight,” Wasson said. “This big shift is coming in 2027. What are the operational changes we're making in 2026 to prepare for that payer shift?”

Some hospital and health system leaders say they remain hopeful that some of the changes in Medicaid programs could be averted, especially if Republicans lose their majorities in the House or Senate in the mid-term elections this fall. Since some changes will take place over the next several years, theoretically, lawmakers could block some of the changes or at least reduce the impact.

While such changes may be possible, most healthcare leaders and analysts say that it’s fine to press lawmakers to preserve Medicaid programs, but they shouldn’t base long-term planning on the hopes that there will be a reprieve.

Hospital leaders must expect the Medicaid changes to take effect, Andrews says, adding that he doesn’t see a political consensus for stopping them.

“I think for at least the next three or four years, we have to plan for that new reality,” Andrews says. “I wish that were not true, but I believe it is true.”