Children’s hospitals could lose billions in funding under AHCA and may need to change their care models

A pediatrician and his patient
The American Health Care Act cuts state budgets by more than $800 billion over 10 years, and children who rely on Medicaid could see their healthcare cut by tens of billions of dollars, according to the Children’s Hospital Association. (Getty/shironosov)

Although the fate of the Republican House plan to repeal and replace the Affordable Care Act is still unclear, a new analysis says children’s hospitals will face massive funding cuts under the legislation and may have to change their care models to survive.

The American Health Care Act cuts state budgets by more than $800 billion over 10 years, and children who rely on Medicaid could see their healthcare cut by tens of billions of dollars, according to the Children’s Hospital Association. “Other changes contained in the bill would make the healthcare system worse for children, not better,” it said in an announcement.

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Indeed, children’s hospitals have become increasingly dependent on Medicaid as their primary payer so a reduction in Medicaid funding will reduce access, coverage and payments for children’s services, reports a new analysis (PDF) from The Chartis Group.

“The debate on the next wave of healthcare legislation moves on from the House and into the Senate, significant uncertainty remains. Yet irrespective of the specific changes to come, children’s hospital reimbursement is at risk. Children’s hospitals will have to wrestle with and balance these strategies and interventions to sustain performance and uphold their commitments to serve all children—regardless of income,” the report says.

As a result, the report says children’s hospitals have two options:

Change their patient mix: This means hospitals would have to seek out more commercially insured children, although many have already optimizing their commercial market share and may find it difficult to raise rates to compensate for the Medicaid reductions. “Many children’s hospital and health plan leaders believe that reimbursement rates are already pushing up against a ceiling. If children’s hospitals raise commercial rates further, it may result in other health systems expanding their pediatric programs to intensify competition with children’s hospitals,” the report notes.

Another possibility is rationing care of Medicaid patients, but this would have to be a last resort given the mission of children’s hospitals is to serve all children in their service areas.

Change their care models: If hospitals can’t change their patient bases to compensate for possible Medicaid reductions, they will have to change their care models. The report suggests three potential strategies:

  • Cut costs by eliminating unnecessary care, such as non-value added diagnostics or shifting care to lower-cost settings and looking at new ways to deliver care, such as virtual are, to provide convenient, accessible care at a lower cost.
  • Implement new innovative care models that address social determinants of health. This means integrating non-clinical resources as key members of the care team, such as partnerships with schools and coordination with housing and other social services. For example, to reduce emergency visits and hospitalizations, the report says children with asthma must receive sufficient education, have a second inhaler at school with a nurse who is aware of their condition and live in homes where the vents are cleaned, mold is eliminated and pests are controlled.
  • Transition to global budget payment models in order to be rewarded for population health management and ensure funding for preventive and ambulatory services. This will require children’s hospitals to work with payers to transitions to new payment models.