Children's Hospitals Face Brunt of Medicaid Cuts

When Steve Woerner, president and chief executive of Driscoll Children’s Hospital in Corpus Christi, looks at the budget state lawmakers are debating, he sees red — profit-dashing, service-slashing red.

Despite some efforts to lessen the blow to pediatric health care providers, Texas’ proposed budget cuts will likely have a disproportionate effect on children’s hospitals, which treat the state’s youngest and poorest patients. The financial implications will not mean halting operations, or necessarily curbing patient care, children’s hospital advocates say. But it will mean cutting back on expansions needed to serve a growing population of children, and on efforts to recruit and retain the best specialists and faculty, said Ben Melson, chief financial officer at Texas Children’s Hospital in Houston.

The reason for the disparity hinges on Medicaid, the joint state-federal health care program that covers nearly three million needy children in Texas. State lawmakers, facing a huge budget shortfall, cannot find the multibillion-dollar savings they need without cutting already skimpy Medicaid provider rates.

Children’s hospitals generally have much higher Medicaid populations than the average hospital — meaning rate reductions hit them even harder. Children’s hospital advocates estimate the House version of the budget would cost them a combined $275 million over two years; they say the version under consideration in the Senate would cost them roughly half that amount.

For Driscoll Children’s, where about 70 percent of patients are on Medicaid, it's not about preserving profit, it's about just trying to break even. The current budget proposals “would essentially leave me a negative cash flow of about $10 million a year,” Woerner said. “We’d actually be in the hole.”

Both the House and Senate versions of the budget decrease Medicaid outpatient rates for children’s hospitals by 10 percent and reduce payments for nonurgent emergency room care. The House version goes even further, cutting inpatient children’s hospital rates, as well as all doctor and dentist reimbursement rates, by 10 percent.

While the Senate’s budget dramatically reduces financing used to draw down a hefty federal match for children’s hospitals, the House’s zeroes it out altogether — at a loss of roughly $60 million, including the federal match, over the next biennium.

Bryan Sperry, president of the Children’s Hospital Association of Texas, said that on average, nearly 60 percent of the patients treated at the seven nonprofit children’s hospitals he represents are on Medicaid. In South Texas, he said, that figure can reach 80 percent. He estimates that for most Texas hospitals a 10 percent Medicaid rate cut would represent a loss of 1 percent of net patient revenue — but for children’s hospitals, it would be up to 5 or 6 percent.

“We’re more dependent on Medicaid than any group of hospitals,” he said. “Anything that happens to it has a big effect on us.”

Melson, of Texas Children’s Hospital, said his hospital stands to lose between $4 million and $6 million per year through the proposed Medicaid cuts. “We’re a high-acuity provider — we see a lot of critically ill children in our hospital,” he said. As the number of children in Texas continues to rise — it is expected to spike by another one million over the next decade — “we want to make sure we can continue to grow,” he said.

Sperry said children’s hospitals, which receive roughly one million outpatient visits and 500,000 emergency room visits per year, can “make it through the next two years” with the current Senate proposal for the budget — which could come up for a vote in the upper chamber as early as next week. The House version would be much tougher. Regardless, he said, state lawmakers need to consider the long-term implications of clipping the wings of the hospitals that teach 70 percent of Texas’ pediatricians-in-training, especially as the country faces a growing physician and specialist shortage.

“These doctors, these hospitals provide services nobody else can,” Sperry said. “If the cuts get too deep, you jeopardize the ability to continue to be a safety net.”