Why is St. Elizabeth’s spending $50M on construction with Medicaid cuts ahead

Metro-east hospitals are bracing for financial challenges ahead because of the changes to Medicaid that President Donald Trump signed into law this month.

Hundreds of thousands of people in Illinois are projected to lose their health insurance through Medicaid, and the state expects a $52 billion drop in funding to finance the program as part of more than $1 trillion in health spending cuts that will be phased in over the next decade in the U.S.

Dave Gross, a leader of the medical trade group Illinois Health and Hospital Association, described the cuts as disastrous for hospitals especially after labor costs rose to combat a nursing shortage, among other cost increases from the COVID-19 pandemic.

“They’re down to the bone,” he said of the coming cuts.

In one of the region’s largest health care systems, HSHS, individual hospitals receive about $2 million to $15 million from Medicaid annually. The low-income public health insurance program accounts for 6-12% of the revenue in their budgets on average, according to annual questionnaires hospitals submit to the Illinois Health Facilities and Services Review Board.

So why is HSHS spending $50 million on construction at the St. Elizabeth’s Hospital campus in O’Fallon with Medicaid cuts on the horizon? It’s one of the ways hospitals and health care systems like HSHS are preparing for a still uncertain financial impact.

Chris Klay, CEO of the HSHS southern Illinois market, called the move a strategic investment.

He said in a recent interview that HSHS actually sped up plans to construct a new 70,000-square-foot outpatient surgery center because it sets up a new revenue stream before the system expects to see Medicaid losses under the newly-passed “One Big Beautiful Bill Act.”This map included in Hospital Sisters Health System’s application to the Illinois Health Facilities and Services Review Board for a permit to build a new outpatient surgical treatment center and medical office shows where the building will be located on undeveloped land near St. Elizabeth’s Hospital off of North Green Mount Road in O’Fallon. Hospital Sisters Health SystemThis rendering included in Hospital Sisters Health System’s application to the Illinois Health Facilities and Services Review Board for a permit to build a new outpatient surgical treatment center and medical office shows what the building will look like. Hospital Sisters Health SystemThis rendering included in Hospital Sisters Health System’s application to the Illinois Health Facilities and Services Review Board for a permit to build a new outpatient surgical treatment center and medical office shows the layout of the building, which includes four operating rooms as well as medical imaging machines for procedures such as MRIs and X-rays. Hospital Sisters Health System

The new HSHS center will offer surgeries in specialties like neurology, orthopedics and pediatrics that it says metro-east patients previously traveled to Missouri to receive.

SIHF Healthcare also announced a recent $8 million investment to purchase and renovate a 69,000-square-foot medical building in Belleville, where it plans to add additional services like outpatient surgery and plastic surgery.

SIHF operates Touchette Regional Hospital, where as much as 78% of the revenue comes from Medicaid — about $39 million annually. SIHF CEO Larry McCulley didn’t respond to the Belleville News-Democrat’s requests for further comment about Medicaid cuts.

Southern Illinois University Edwardsville Professor Ariel Belasen, who teaches health economics and policy, said patients may see more hospitals adding high-ticket services like surgeries to offset their new costs, the opposite of what happened during COVID when elective surgeries were halted.

“I think what you’re going to start seeing is shifting of service priorities,” Belasen said.

Opponents of the changes to Medicaid have been raising concerns that new costs could force hospitals to cut other, less profitable services to avoid closing their doors.

Local hospitals and health care systems that responded to the BND’s request for comment said their staffs are still working to learn the true impact to their budget, including HSHS, BJC Health System, OSF HealthCare, Red Bud Regional Hospital and Sparta Community Hospital.

They couldn’t say whether or not services will be eliminated down the road.

“I think the reality is we truly don’t know what we’ll have to do,” Klay said.

Beyond the new surgical center, Klay said HSHS is preparing for what may be in store by taking steps to manage costs it can control now during contract negotiations with hospital vendors for things like equipment and supplies.

Sparta Community Hospital CEO Joann Emge said her staff might also put off future expenses like facility upgrades to keep operational costs down, if needed.

“It’s a very slim margin now,” Emge said of hospital budgets. How the ‘One Big Beautiful Bill’ changes Medicaid

The “One Big Beautiful Bill” passed in early July with only Republican support.

Under the new law, Medicaid recipients will be required to prove they’re working, with some exemptions, to receive their health benefits. It also requires them to verify their eligibility more often.

U.S. Rep. Mike Bost, R-Murphysboro, whose district includes metro-east communities, said in a recent newsletter to constituents that he supported the rules because they “curb waste and fraud” and “ensure benefits are preserved for those who truly need them.”

Opponents argue that eligible people could lose coverage due to administrative errors.

When Arkansas imposed work requirement seven years ago, more than 18,000 people lost coverage even though 97% of eligible Arkansans were meeting the necessary hours worked or qualified for an exemption, according to the nonprofit Arkansas Advocates for Children and Families, which cited a 2018 Harvard survey.

The nonpartisan Congressional Budget Office estimated two years ago that work requirements wouldn’t increase employment among Medicaid recipients. Instead, it would cut federal spending while raising state costs and increasing the number of uninsured people, according to the budget office’s 2023 estimates on the potential outcomes for lawmakers.

Illinois Gov. J.B. Pritzker called the Medicaid provisions cruel. He has pointed to estimates that 330,000 people in Illinois could be kicked off of their insurance as a result of the legislation, based on modeling by Manatt Health.

Gross, the senior vice president of government relations and communications for the Illinois Health and Hospital Association, said the work requirements are targeting people who enrolled in Medicaid when the Affordable Care Act expanded eligibility for the program to include adults who have no disabilities or children.

In the metro-east, more than 40,000 people fall into that category, according to Medicaid enrollment data from the Illinois Department of Healthcare and Family Services.

Some estimates show the coverage for the expansion population could be cut nearly in half by the federal bill, Gross noted.

Belasen said the loss of benefits will have other economic impacts, including an estimated 50,000 job losses in Illinois. That would include positions in health care fields and other sectors like retailers, based on estimates from the Commonwealth Fund. The private research foundation considered the combined impacts of cuts to Medicaid and the Supplemental Nutrition Assistance Program under the “One Big Beautiful Bill” in its analysis.

Hospitals won’t turn uninsured patients away. But experts say people who lose their coverage may put off seeing a doctor until they’re much sicker, likely in emergency rooms where care is more expensive. And if they can’t pay, it means a bigger loss to hospitals.

The bill also freezes and gradually lowers the tax states like Illinois levy on health care providers to help finance the Medicaid program. That means the amount of money medical providers receive as a reimbursement is expected to move further away from the actual cost of their services for those who keep their Medicaid coverage, adding to the strain on hospital budgets. What’s being done to help hospitals?

Senate Republicans added a provision to the bill just before they voted that will provide $50 billion in funding for rural health over five years. But KFF, which analyzes health policies, has estimated that the loss to rural communities will be three times larger than that. The nonprofit projects Medicaid spending will drop by $155 billion in rural areas over 10 years.

Rural hospitals are expected to be most impacted by the funding cuts in the bill because more of their patients are covered by Medicaid.

An analysis by the Cecil G. Sheps Center for Health Services Research at the University of North Carolina identified nine rural hospitals in Illinois as being at risk of closure due to Medicaid losses.

None of the hospitals are located in the metro-east. But a health care system with two rural hospitals on the at-risk list also operates a hospital in Alton: OSF HealthCare.

The Sheps Center said other OSF hospitals in Danville and Dixon were at risk of closing because they each experienced three consecutive years of negative profit margins.

OSF spokesperson Tim Ditman provided a written statement in response to the BND’s interview request. He said OSF “will be keeping an eye on” the $50 billion rural health fund.

“While there are still many unknowns surrounding the recently signed bill, we are closely monitoring developments and advocating on behalf of our patients and the communities we serve,” Ditman wrote in the statement. “... We remain hopeful that those who rely on us for care will not be negatively impacted and will continue to receive the high-quality, mission-driven care they deserve.”

Earlier this month, Pritzker, Lieutenant Governor Juliana Stratton and Illinois Department of Healthcare and Family Services Director Elizabeth Whitehorn said in a joint public statement that they would do everything in their power to mitigate the impact of Medicaid cuts in Illinois. The statement specifically mentioned actions state leaders have already taken and vow to continue, including a pilot medical debt relief program, investments in pre- and post-natal care and guardrails to prevent inflating medication costs.

When pressed for more specifics about actions state leaders could take in the future, the governor’s office said only that it would invest millions in new technology and hire hundreds of people to implement the new work requirement rules and “keep eligible people from falling through the cracks.”

These changes to Medicaid won’t start taking effect until late 2026, after the midterm elections. Hospitals and trade groups like the Illinois Health and Hospital Association are holding out hope that they could still be rolled back.

Increased eligibility checks are scheduled to begin Dec. 31, 2026. Work requirements are, too, but they could be pushed until 2028 to give states more time to set up systems and staffing to collect the information from enrollees.

The frozen provider tax rate is scheduled to start gradually declining in 2028.

“There’s a little bit of time to try to correct some of these decisions,” Gross said. “... We’ve got to see what else can be done.”HSHS St. Elizabeth’s Hospital in O’Fallon, pictured here, gets about $15 million from Medicaid annually, accounting for about 6% of the revenue in the hospital’s budget, on average. Joshua Carter/Belleville News-Democrat

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