Republicans are proposing radical healthcare cuts. How could hospitals be affected?

A wish list of program cuts being circulated by House Republicans includes proposals that target the healthcare system. Here are some of the proposed cuts and the potential repercussions for hospitals.

Medicaid program cuts

Medicaid is a state-run health insurance program heavily subsidized by the federal government, which covers nearly 80 million people and funds more than 40% of the nation’s births.

Potential Medicaid cuts suggested by representatives include:

• cutting the federal funding match rate for the Medicaid expansion population 
• changing federal funding from a matching rate to per-capita block grants
• reducing state-directed payments, which supplement providers in Medicaid managed care plans 
• limiting Medicaid provider taxes, used by states to fund their share of Medicaid 
• establishing Medicaid work requirements
• allowing more administrative hurdles to Medicaid access (such as eligibility checks more than once a year and in-person interview requirements)
• excluding non-citizens from Medicaid coverage 

How would hospitals be impacted?

Altogether, these cuts would drastically reduce the amount of federal support for state Medicaid programs (more than $2 trillion over a decade) and lead states to restrict eligibility. Twelve states have “trigger” laws that would automatically undo Medicaid expansion if federal funding is cut.

For hospitals, that means that more people will be uninsured and less likely to be able to pay for care, increasing the amount of financial assistance that will be needed. Hospitals will have to spend more on uncompensated care or restrict care to those who are insured or pay in advance.

ACA marketplace plan cuts

Affordable Care Act marketplace offers health insurance plans currently serving 45 million people. Premiums are subsidized for enrollees based on income.

Proposed cuts include:

• excluding non-citizens from subsidy eligibility 
• putting restrictions on ACA marketplace plan eligibility, such as shortening the open enrollment period 
• Repealing Biden’s fix for the “family glitch,” (which had previously prevented family members of low-income workers from receiving premium assistance for marketplace plans)
• removing the “repayment cap” for the premium tax credit that allows some lower-income enrollees to hold onto overpayments 

How would hospitals be impacted?

A higher rate of uninsured people means hospitals will be picking up the slack by absorbing greater losses from uncompensated care or they may choose to turn away uninsured patients for non-emergency care.

Cuts to programs that benefit hospitals

Other proposed cuts target hospital revenue directly through price caps on drugs and other fees.

Proposed actions include:

• restricting hospitals’ ability to sell 340B discounted drugs at market price (currently, hospitals can sell drugs they receive at a discount through 340B at the market price)
• banning facility fees and establishing “site-neutral” payments for certain outpatient hospital services so that reimbursement rates are the same across setting (hospital outpatient facilities currently receive higher reimbursements from Medicare and other insurers)
• eliminating hospital tax-exempt status (private nonprofit hospitals receive an estimated $37 billion in tax breaks collectively each year).

How would hospitals be impacted?

Eliminating facility fees could have a positive effect on healthcare affordability for patients; unlike Medicaid cuts, they could expand access to care rather than restrict it. However, on top of Medicaid cuts, this reduction in revenue could put some hospitals’ finances at risk, particularly rural hospitals and safety nets that operate on thin margins.

Many smaller hospitals depend on 340B revenue in particular to stay afloat. Rather than restrict hospital profits from 340B, a better solution might be requiring that hospitals use these profits to provide more financial assistance to those who need it. 

Eliminating the hospital tax exemption would not only be a hit to hospital finances, it would be a detriment to patients by removing nonprofit hospital requirements. Hospitals would no longer have to assess community health needs, report their spending on community benefits, have a policy offering financial assistance, or follow a number of other important requirements. 

Preparing for the future

How will hospitals respond to potential cuts? In Modern Healthcare, hospital executives mentioned several strategies: “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.”

The previously mentioned cuts are just a small portion of the policies that have been proposed. We’ll be tracking activity related to these and other proposals, so stay tuned.