The Texas Tribune: Children’s Hospitals See Peril in Proposed Budgets

Despite some efforts to ease the blow to pediatric health care providers, Texas’ proposed budget cuts will most likely have a disproportionate effect on children’s hospitals. The financial implications will not mean halting operations, or necessarily curbing care, advocates for the hospitals say. Instead, said Ben Melson, chief financial officer at Texas Children’s Hospital in Houston, the result will be cutting back on expansions needed to serve a growing population and on efforts to recruit and retain the best specialists and faculty.

The reason for the heavier impact 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 rates for Medicaid providers.

Children’s hospitals generally have much higher Medicaid populations than the average hospital — meaning rate reductions hit them harder. Their advocates estimate that the House’s budget would cost the hospitals 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, the concern is not about preserving his bottom line, it is about just trying to break even. Both budget proposals “would essentially leave me a negative cash flow of about $10 million a year,” Mr. Woerner said.

Both the House and Senate versions of the budget lower 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 sharply 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 at the seven nonprofit children’s hospitals he represents are on Medicaid. In South Texas, Mr. Sperry said, that figure can reach 80 percent.

He estimates that for most Texas hospitals a 10 percent cut in the Medicaid rate would represent a loss of 1 percent of net patient revenue — but that for children’s hospitals, it would be up to 5 percent or 6 percent.

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

Mr. Melson, of Texas Children’s Hospital, said his hospital stands to lose $4 million to $6 million a 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,” Mr. Melson said.

Mr. Sperry said children’s hospitals, which receive roughly one million outpatient visits and 500,000 emergency room visits a year, can “make it through the next two years” with the current Senate budget proposal, which could come up for a vote in the upper chamber as early as next week. The House version would be much tougher.

Regardless, Mr. Sperry said, 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 shortage of physicians and specialists.