warning sign that says medicaid cuts ahead

Fact Check: Are State Lawmakers Really Considering Hospital Budget Cuts in the Middle of the COVID-19 Crisis?

June 5, 2020 / Salon.com
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A recent Salon.com article warned that state governments across the country, including Colorado, are debating whether to cut payments to hospitals and other healthcare providers on the front lines of the COVID-19 pandemic. But with so many health systems in financial crisis because of COVID-19, can this really be true?

CLAIM: Across a number of states, officials are considering cuts in Medicaid reimbursement that could reduce access to primary care doctors and threaten financially stressed hospitals with closure, according to Karen Clay, professor of economics and public policy at Carnegie Mellon University’s Heinz College of Information Systems and Public Policy.


This may seem counterintuitive, but it’s true: Lawmakers in Colorado and other states are debating proposals that would effectively cut the budgets of health systems that are already suffering major financial distress because of COVID-19.

According to Modern Healthcare, at least six states have proposed cuts in Medicaid reimbursement rates to help cover their own massive budget shortfalls due to the economic impacts of COVID-19. In Colorado, “hospitals could be facing roughly $200 million to $250 million in Medicaid pay cuts and increased provider fees” under some proposals circulated in mid-May, the publication noted.

In Colorado, preliminary funding decisions are made by a panel of lawmakers called the Joint Budget Committee. Then, the JBC’s decisions can be adopted or changed by the state legislature, before a final budget bill is sent to the Governor’s office for signature or veto.

After an extended break to observe social COVID-19 distancing measures, the JBC completed its work on May 22, clearing the way for the state legislature to finish the rest of the budget-writing process over the next few weeks.

According to Colorado Public Radio, during the JBC hearings, the Colorado Hospital Association agreed to some major cuts to prevent even harsher reductions. For example, $160 million in hospital fees that normally subsidize care for Medicaid patients and the uninsured will instead be moved into the state’s General Fund to patch budget shortfalls. According to CPR, the CHA “supported the move because it said other options were worse.”

But where did the idea of cutting financial resources to hospitals come from in the first place?

Earlier in the JBC process, committee staff attempted to justify health-related cuts because of planned federal payments to hospitals under the Coronavirus Aid, Relief, and Economic Security Act, better known as the CARES Act.

“Hospitals are receiving significant funding through the federal CARES Act,” JBC staff wrote in a May 4 recommendation to lawmakers. “Increased federal funds may offset some of the lost revenue to hospitals.”

So that’s where the idea came from: A belief that whatever the state takes away from hospitals, the federal government can make up later.

Unfortunately, however appealing this idea might be, it’s also wrong. It dramatically underestimates the scale, complexity and timeframe of the financial challenges facing the healthcare sector because of COVID-19.

The federal government has set aside $175 billion to help hospitals pay for protective gear, medical equipment and other expenses tied to the treatment of COVID-19 patients. But this doesn’t take into account the huge financial blow that health systems have suffered due to the cancellation of elective surgeries and other procedures.

According to Kaufman Hall’s National Hospital Flash Report for May 2020, the one-two punch of COVID-19 costs and the loss of elective surgeries have left the nation’s hospitals in a “perilous” situation. “At the same time that they are serving as the frontlines for the battle against a highly contagious and unpredictable virus, their financial viability is being threatened,” the report said.

Using data from 800 hospitals nationwide, Kaufman Hall found average operating losses of 29% in April, with no end in sight. This is because patients will be slow to return to hospitals for elective surgeries, even after the lifting of bans on these procedures. Almost 40% of people surveyed are “uncomfortable seeking care at a hospital as restrictions ease,” the report said.

“If these trends continue at our hospitals, the domino effect on the nation’s economy and the broader healthcare system could be catastrophic,” the report concluded.

Here in Colorado, the same trend is playing out. As of early May, Colorado hospitals had received $360 million of CARES Act support, according to the JBC. But the Colorado Hospital Association says losses for this year are currently on track for $3.1 billion – roughly nine times larger than the amount provided by the CARES Act.

In Western Colorado, for example, the Grand Junction Daily Sentinelsurveyed local hospitals and found the amount of aid received under the CARES Act was roughly 30% to 50% of the amount of revenue they had lost due to the pandemic. These financial pressures have already led to 100 hospital workers in Glenwood Springs losing their jobs, the Daily Sentinel reported.

Legislatures in every state – including Colorado – are facing incredibly difficult budget decisions because tax revenues have dramatically fallen thanks to COVID-19. In this environment, it is understandable that lawmakers may be tempted to cut Medicaid reimbursements and find other ways to siphon resources away from hospitals to put towards other priorities.

But as things stand today, lawmakers would be wrong to assume the federal government will backstop all the state-level cuts made in healthcare. The $175 billion set aside under the CARES Act will not come close to covering hospital losses due to COVID-19, which are currently estimated between $200 billion and $500 billion.

Therefore, unless and until this level of federal support changes, cutting reimbursements and other budget moves targeting hospitals will have real, immediate and negative consequences for the front lines of the healthcare system in the middle of a global health crisis. It is useless to pretend otherwise.