Medicaid Funding Changes Pose Challenges for Children’s Hospitals
Recent changes to federal law are set to impact how states fund Medicaid, perhaps leading to reduced payments to hospitals, particularly those specializing in pediatric care. The alterations, stemming from a new law championed by conservatives, will cap state-directed Medicaid payments to hospitals in moast states at Medicare rates, or 110% of Medicare rates in states that haven’t expanded medicaid. Previously, the Biden management allowed states to reimburse providers at rates comparable to those paid by private insurers – generally around 2.5 times the Medicare rate, according to the Kaiser Family foundation (KFF).
The rationale behind the change, as articulated by Brian Blase, president of the Paragon Health Institute and an architect of the new law, is to ensure equitable payment structures. He argues states shouldn’t reimburse hospitals more for treating Medicaid patients than Medicare patients, and that the supplemental payments lack accountability in how they are utilized. Blase characterized these payments as “corporate welfare,” potentially benefiting financially stable institutions.
The impact of these cuts will vary state by state. Virginia’s Children’s Hospital of The King’s Daughters, for example, relies on over $11 million annually in state-directed payments to offset the difference between Medicaid’s low reimbursement rates and the actual cost of specialized pediatric care. Spokesperson Alice Warchol stated the cuts “will have serious and far-reaching consequences” to the hospital’s services, programs, and patients, specifically impacting specialized medical, surgical, and psychiatric care.In fiscal year 2023, King’s Daughters reported a $24 million surplus on $646 million in revenue. The hospital utilizes the supplemental medicaid funding to expand services for abused and neglected children and bolster mental health programs.
Other states approach tracking the use of these funds differently.Utah medicaid Director Jennifer Strohecker noted her state doesn’t track how the supplemental money is spent, while Texas uses the funds as performance incentives for hospitals, publishing annual reports on their progress.
Despite receiving supplemental funding, Matthew Cook, president and CEO of the Children’s Hospital Association, emphasizes that Medicaid still doesn’t fully cover the cost of treating patients. He points out that not all children’s hospitals benefit from strong financial positions bolstered by philanthropy, and these cuts are occurring alongside reductions in other federal funding sources, including those for doctor training and research.
Phoenix Children’s Hospital, which reported a $163 million surplus on nearly $1.5 billion in revenue in 2023, anticipates the funding loss will hinder expansions of care and workforce growth. Hospital representative Meyer expressed hope for a delay or reversal of the cuts, but acknowledged the hospital is preparing for the financial impact, viewing a current grace period as crucial for adjustment.
