Health systems forecast pain from Medicaid cuts

Summary

Earlier this year, Augusta Health was returning to the financial stability it had enjoyed prior to the COVID-19 pandemic. Then came the One Big Beautiful Bill barreling down from Capitol Hill.

In response to President Donald Trump's signature domestic spending legislation, which was signed into law in July, Augusta Medical Group announced in September that it was closing an urgent care clinic and two primary care clinics in the Augusta and Rockbridge counties area, meaning patients will need to travel farther for medical care.

A press release cited the One Big Beautiful Bill Act and said the closings "are necessary to ensure the future of Augusta Health and to provide the consistent, cost-effective care our communities deserve."

Among other major policy changes, the legislation is set to slash Medicaid spending, which will impact hospitals' budgets across the country. Some may even close, according to multiple forecasts.

States like Virginia that rapidly expanded Medicaid coverage in recent years will be hardest hit, according to the Congressional Budget Office and other sources.

Augusta Health, a 255-bed community hospital near Staunton, is in the third year of a five-year recovery plan after COVID. And "we were on track to get back to our 4.5% margin by 2027 [or] 2028," says Augusta Health President and CEO Mary N. Mannix.

Now, Mannix and her board are looking at increased annual expenses and revenue reduction that will grow to a $40 million operating loss in 2034 from the combined effects of increased uncompensated care costs, declining reimbursement and other impacts. This means digging into hard choices.

"We are developing an alignment plan to adjust our cost structure down to align with these new financial realities. We also plan to grow our revenue as a strategy to address this situation, making investments in our future growth," Mannix says. "We don't want to just cut our way to the point of financial stability; we also want to grow our way back to financial stability. Both pathways will be essential. This will be very hard and complex work."

Starting in 2027, to maintain coverage, most adult Medicaid recipients will have to spend at least 80 hours a month working, volunteering or attending school, unless they have a disability or caregiving responsibility for a disabled relative or a child under age 13.

Nearly 1.9 million Virginians are currently covered by Medicaid, with about 630,000 people having gained access after the state expanded coverage in 2019. However, at least 350,000 Virginians are expected to lose their insurance once Medicaid changes take effect.

The state's 2019 Medicaid expansion helped reduce the number of uninsured people to 7% of the state's population, but U.S. Sen. Mark Warner, Virginia's Democratic senior senator, anticipates that percentage could soon grow to 15% or 16%, with as many as 500,000 to 600,000 Virginians losing health coverage.

That, he and others warn, will be "devastating" to rural hospitals that rely on Medicaid funding for a significant part of their budgets. Jobs and treatment are at risk, and uninsured patients' care costs will likely lead to higher insurance bills for companies and individuals, officials say.

In the red

Even with Medicaid revenue and state funding, hospitals in rural areas were already strained to the breaking point, says the Virginia Hospital & Healthcare Association, which represents 113 hospitals statewide. More than a third of all rural Virginia hospitals operated in the red in 2022, the organization says.

In the weeks leading up to the Big Beautiful Bill's signing, the University of North Carolina's Sheps Center for Health Services Research identified 338 rural hospitals nationally at risk of closing, including six in Virginia. The report based its findings on whether a hospital lost money over the past three years and how many Medicaid patients it serves.

Statewide, hospitals in Franklin, Emporia, South Hill, Tazewell, Kilmarnock and Lee County are listed as at risk of closure.

But it's not just small, rural hospitals that are scrambling. From Hampton Roads health care system Sentara Health to smaller community hospitals like Augusta, executives and their boards are drawing up plans to address the coming attack on their bottom lines.

Virginia's Department of Medical Assistance Services anticipates that hospitals statewide will likely lose $26 billion in payments over the next 14 years as a result of the federal legislation, a figure Aubrey Layne, Sentara Health's executive vice president and chief administrative officer, says Sentara has corroborated.

"The bottom line is they cut a trillion dollars out of the system and the Medicaid program over 10 years," Layne says. "So, there's going to be less money in the system."

This means three things, he adds: Fewer people will be covered, fewer services will be offered, and health care providers will be paid less for their services.

However, people without coverage will still show up at emergency rooms, Layne predicts. And under the law, nonprofit hospitals like Sentara's 11 Virginia facilities can't turn patients away, so those costs must be covered in other ways like higher fees for insured patients, he notes.

"Medicaid reimbursement was sort of the glue in the system. What happens with that being reduced?" Layne asks. "Either we've got to find ways to reduce costs or charge the cost on to somewhere else, whether it's commercial clients or whatever."

"If we overwhelm the emergency rooms with folks who don't have health care coverage, those costs have to be absorbed," Warner said during a Sept. 11 call with Virginia media. "The only way they're absorbed is if insurance rates for all of us go up."

As a result of the cuts, an average 60-year-old couple in the Roanoke Valley making $80,000 annually, according to Warner, will likely see their health insurance prices go up about $800 or $900 monthly.

Patients will also see the impact in other ways, Layne adds: "Accessibility, your ability to find a doctor, your ability to get certain services at certain times are going to be impacted because of these cuts."

Warner notes that Virginia's uninsured population was at 17% in 2013, but that number was reduced to 7% as a result of state Medicaid expansion and the federal Affordable Care Act.

Now, he predicts there will be a backslide beginning in 2027, when Virginia could lose about a fifth of its Medicaid enrollment and corresponding federal funding, according to forecasting from KFF (formerly Kaiser Family Foundation). That's one of the largest reductions in the nation, and KFF projects the number of uninsured Virginians will increase by 350,000 over the following decade.

At the same time, hospitals will lose state funding that currently makes up the difference between federal Medicaid spending and the hospitals' treatment costs. The state has imposed a 6% tax on net revenue at 63 private acute-care hospitals, money that accounts for 16% of net revenue at hospitals across the commonwealth and even more at rural hospitals, where state funds make up between 20% to 34% of their income.

But under the Big Beautiful Bill, Virginia and 21 other states will be required to reduce the 6% tax to 3.5%.

"I am by no means saying that the status quo is perfect, but the idea of going back from roughly 7% of Virginians to 15 or 16% uninsured could potentially devastate rural hospitals," Warner says. "But even in suburban and urban hospitals, it's going to take a heavy toll."

On the ground

According to the UNC rural hospital report, Lee County Community Hospital is at risk of closing. A 12-bed facility run by Ballad Health in Pennington Gap, the hospital reopened in 2021, eight years after it closed.

"It's become a viable little operation," says Warner, who attended the reopening ceremony. "For all those years, the community worked their tail off with Ballad Health there [to reopen]. And it's one of the hospitals that could disappear if this law is fully implemented."

Ballad Health CEO Alan Levine warned before the bill's passage that the legislation would have "devastating" impacts on the Appalachian region's health care and jobs, but Republican lawmakers say they're working to save these institutions. In July, following the bill's signing, U.S. Rep. Morgan Griffith, R-Salem, chair of the House Subcommittee on Health and congressional representative for the Southwest Virginia region, visited the Lee County hospital.

Griffith said in a TV interview that he doesn't intend for the hospital to close again and that the GOP is working on fixes to keep rural facilities open and running.

Nonetheless, health system officials are preparing for the worst.

Valley Health CEO Mark Nantz, whose Winchester-based system operates four hospitals in northwest Virginia and two in West Virginia, expects to see revenue cuts result from lower state-directed payments and fewer people covered by Medicaid or ACA.

By 2031, Valley Health projects, these changes will result in $73 million in lost annual revenue. Nantz says that the health system already had narrow profit margins that fell from 4% to zero during the height of the pandemic, and he anticipates this year's margin to be between 2% and 3%.

Republicans have touted the federal bill's fund for rural hospitals that could deliver $100 million annually to Virginia facilities for the next five years, but Nantz says his system will probably receive only $7 million annually at best. That still leaves a $66 million shortfall.

"What are we going to do about it? I'm not going to tell you I'm shutting down hospitals and I'm laying off people," he says.

"We will have to tighten our belts. We will have to adjust our ministry in whatever ways are necessary to get that $66 million out of cost. Unlike the federal government, we can't run with a deficit for years on end. We actually have to make our books balance."

Hospitals contribute $62 billion to the state economy and directly employ about 141,000 people, according to the VHHA, which adds that each health care job supports two other local jobs. The Commonwealth Fund predicts that the state could lose 13,200 health care jobs by 2029.

Insurance costs

In addition to operating health care facilities, Sentara is the largest Medicaid health insurance provider in the state, with about 47% of its health plan business related to Medicaid and 15% of its patients relying on Medicaid, Layne says.

Federal standards on what Medicaid will and won't cover are coming up for renewal soon, which Layne anticipates will "be a big fight over the next few years."

In the meantime, Sentara is creating a three-year plan to reduce costs in anticipation of reduced Medicaid coverage of treatment starting in 2028.

"I think it's a misnomer that these politicians are saying we've got three years to work through this," Layne adds. "We don't."

Cost reduction plans also will impact the state and local economy, health care officials anticipate. Sentara employs more than 34,000 people in Virginia and eastern North Carolina, while Valley Health has more than 6,200 employees who are collectively paid $600 million annually.

Beyond the effects on staffing and service levels, as well as vendors and contractors, health care systems may scale back community programming like health clinics and charitable work. Businesses will also be expected to pay more to insure employees.

"The spillover effect is significant," says Julian Walker, vice president of communications for VHHA. "We have a complex, multilayered system where so many components are tied together. The reality, for better or worse, is that if one portion of the system atrophies or fails, it's not just that thing in the corner that is going to feel the effects."

Hospitals need to be transparent with patients about what's anticipated to happen, Warner says, because "these cuts are coming, and they're going to hurt across the board, and they're going to be disproportionately hitting rural hospitals."

Once the full impact of the Big Beautiful Bill becomes apparent, Warner and Mannix say, it may force a deeper examination of health care in the United States, possibly leading to a correction federally.

"I didn't believe this 10 years ago, but maybe it's time to start with a system where we have basic health care for everybody, and then you can add on top," offers Warner.

"Any common sense tells me there has to be a correction," Mannix says. "When hospitals begin to have more uncompensated care, that puts them in a very precarious financial position. You're going to see a huge erosion in the health care delivery system of the United States.

"One would think," she adds, "that there would have to be some level of correction for the sake of humanity." ■

Associate Editor Beth JoJack contributed to this report.

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