Medicaid reductions could have a “dramatic impact” on providers

Sinai Chicago, a safety net health system on the south and west of the city, serves patients who may face long-term shorter life expectancy than urban residents living a few miles away.

Most patients are African-American and Latino, facing greater outbreaks of chronic disease and worsening health outcomes, said Ngozi Ezike, president and CEO of Sinai.

“It gives us a great opportunity to narrow these health disparities between individuals in our community, people a few miles away and those who enjoy more years of life and quality of life,” she said.

As such, Medicaid is the “critical” payer of the health system. Approximately 70% of provider patients are enrolled in the public insurance program for low-income Americans. This is a significant portion compared to Illinois as a whole, with around 25% of residents eligible for Medicaid.

Now, along with providers across the country, Sinai is fighting the potential fallout from reductions currently being considered in Congress to safety insurance.

Limiting the flow of Medicaid dollars will have a major impact, particularly those who serve providers, particularly those who are low-income people, hospitals in rural communities, and long-term caregivers who are already heavily dependent on programs, experts say.

Medicaid accounts for about a fifth of its spending on hospital care and more than 60% of long-term care services, according to health policy research firm KFF. Some providers may need to consider selling to cut services, fire staff, or reduce the impact, experts say.

For example, Sinai has created a contingency plan to help the healthcare system maintain operations that could include reduced services, Ezike said.

“We understand that we may need to continue trying to do everything and provide less care rather than keeping ourselves from providing nothing in the long run,” she said.

Cost shifts to states

Last month, Republican lawmakers approved a budget blueprint calling for the House Energy and Commerce Committee, which oversees Medicare and Medicaid, finding $880 billion in savings.

The resolution did not name Medicaid, but lawmakers struggle to find a cut in size without reducing the program's funding. It is likely that it would be impossible to achieve its $800 billion target without cutting key healthcare programs within the committee's scope.

While lawmakers' methods to reduce spending on Medicaid are not yet clear, the Energy and Commerce Committee will meet next week to mark up some of the settlement package and hashout laws.

Most of the plans under consideration to cut Medicaid will involve a shift in costs to the state, Edwin Park, a research professor at the McCourt School of Public Policy, said last month in a panel discussion held by the University of Southern California's Center for Health Journalism.

For example, Congress could place a per cap on the growth of Medicaid federal spending. Alice Burns, who has KFF's Medicaid program and uninsured program, says that if the amount per enrollment per state enrollment is low, there will be financial pressures to reduce provider payment rates and lower benefits.

Lawmakers can also cap federal spending only for enrollees covered through the expansion of Medicaid, and most states have expanded eligibility for safety net insurance programs under the Affordable Care Act.

Other options include provider tax restrictions. In states, states collect taxes from providers and use revenue to increase state funding shares that the federally match.

Work requirements that link Medicaid, education, education, or volunteer time could potentially lead to beneficiaries losing coverage, but some may be able to eventually re-enroll in the program, Burns said. Many enrollees may not know that it was removed from the program until they go to a doctor or try to fill in their prescription.

And unlike the federal government, states need to balance their budgets, leaving them with taxes up, cut other parts of their budget or cut Medicaid. This includes reducing provider rates, limiting eligibility, or reducing benefits.

A cut can lead to significant coverage losses. According to an analysis published this week by the CBO, if Congress equips per cap or a restrictive provider tax, millions may lose Medicaid or have no insurance.

“It's up to the state to make the painful decisions needed to balance the budget,” Park said.

Provider's “a fundamental shock”

The potential scale of the cuts (probably hundreds of millions of dollars) means an impact on providers, Burns said.

“No matter how much you cut your program, it's not important that the cut of that size is important,” she said.

As facilities face rising labor and supplies costs, when hospital margins become narrower, reductions could occur as many providers are recovering from the Covid-19 pandemic.

Financial performance at many hospitals has improved since 2023, but the recovery has been uneven.

According to KFF's analysis, hospitals with high stocks of rural and urban Medicaid patients had operating profit margins of 1.7% and 2.3%, respectively. In comparison, all hospitals' operating margins in 2023 were 5.2%.

After Covid, many hospitals were already trying to find efficiency and cut costs, said Mary Haddad, president and CEO of the Catholic Health Association.

“We need to recognize the fact that we have finite resources and understand how to continue to provide care to those who are most needy,” she said. “That would have a dramatic effect.”

Brach Eichler's managing member and chairman of healthcare law John Fanburg said hospitals aim to reduce costs by firing workers or cutting services. Physician practices could be to close the door or try to sell themselves to a larger healthcare system or private corporation.

Funberg said the impact of providers with a higher number of Medicaid patients will be worsened. If Medicaid is the majority of the budget, the system would be “as a 5% reduction is important if Medicaid pays $10 million a year.” Funburg I said. “Where can you find it?”

According to Zachary Levinson, project director for the KFF project on hospital costs, these providers tend to have slimmer margins and are more likely to operate in red, so rural hospitals could be hit hard by Medicaid cuts.

And if a patient loses coverage, the cost of care can be on the provider. Kyu Rhee, president and CEO of the National Association of Community Health Centres, said many community health centers (which offer primary care for low-income people, where half of their patients take Medicaid) are already operating on a limited number of days in their margins.

“Health centres have to withstand these costs, and if you don't pay for it, what do you do? Because there's not that negative margin level and not much cash on hand, you're actually forced to let people go or close the site,” he said.

On the other hand, if the beneficiary loses coverage, it can avoid seeking medical services due to potential costs. This puts additional pressure on other parts of the healthcare system.

Haddad said many patients used the emergency department for primary care before the ACA passed. It could sometimes lead to overcrowding in the emergency department, delay care for sick patients, or revival if Medicaid is cut, she said.

Ezike in Sinai worries that Medicaid could ripple across the safety ecosystem, in addition to colliding with the health system. Other providers refer patients to Sinai to provide a variety of specialties that others may not be able to provide, such as high-level neonatal intensive care units.

And she said that if there is a cut, some small safety nets could close the door.

“It's going to have worse outcomes as people continue this spiral of not accessing care and is much more advanced with a much more advanced disease,” Ezike said. “That life expectancy gap we are actively working to narrow it down can actually get worse.”