Image by oljamu from PixabayHouse Republicans on Sunday introduced a bill that includes significant cuts to Medicaid funding, including tighter eligibility requirements and reduced reimbursements to states.
Some estimates show that the GOP-proposed changes would equate to about $715 billion in Medicaid cuts down the road.
This comes amid a broader push to offset tax cuts introduced during the Trump administration. While the proposed cuts could deeply affect hospitals and other health care providers with a Medicaid-heavy revenue mix, the impact on ambulatory surgery centers (ASCs) is expected to be more limited.
ASCs could still feel the ripple effects, industry stakeholders told ASC News.
For some, there may even be a silver lining, Peter Lohrengel, executive director of the North Carolina Ambulatory Surgical Center Association, told ASC News.
“Medicaid reimbursement in North Carolina is pretty low, so hospitals are struggling more with these cuts,” Lohrengel said. “ASCs, on the other hand, could see a silver lining in the form of an increased volume of patients shifting from hospital settings to outpatient care.”
In certain areas, such as dental care, ASCs have worked with Medicaid to establish reimbursement structures that allow these centers to treat patients more effectively, Lohrengel said.
“If hospitals reduce their capacity to take on low-margin Medicaid patients, ASCs could step in and absorb some of that demand, provided reimbursement is adequate,” he said.
While ASCs may not rely as heavily on Medicaid reimbursement as hospitals do, the changes to Medicaid could still alter the broader health care ecosystem, especially in states that have expanded Medicaid in recent years.
The risks of reduced Medicaid participation
The cuts could prompt some ASCs to become more selective in accepting Medicaid patients, liken those in states where the Medicaid program has a higher impact, Grant Luke, strategic account manager at CapExpert, told ASC News.
“If Medicaid reimbursement rates are cut, ASCs serving a significant Medicaid population could see a reduction in revenue per procedure,” he said.
This shift could result in higher operational pressures for these centers, particularly for smaller, independent ASCs, he added.
And such reductions could shift the patient mix at many ASCs.
“Some centers might limit the number of Medicaid patients they serve, which could lead to access issues and push more patients toward hospital outpatient departments,” Luke said.
For many smaller ASCs, the financial squeeze caused by Medicaid cuts may accelerate consolidation. Some ASCs, particularly those with a high Medicaid volume, may seek acquisition by larger systems, Michael McClain, managing partner at Left Coast Healthcare Advisors, told ASC News.
“Smaller centers with a high Medicaid volume might be more likely to be acquired by larger networks that have the financial flexibility to absorb lower reimbursement rates,” he said.
In addition to consolidation, ASCs will need to focus on improving operational efficiency to offset potential lower reimbursement rates.
“ASCs may have to streamline their processes, negotiate better rates with suppliers, and focus on higher-volume procedures to remain financially viable,” Luke said.
Specialties with a higher proportion of Medicaid patients, such as gastroenterology and pain management, may feel the cuts more, as they tend to have lower margins compared to other surgical specialties, he added.
Yet two of the largest ASC operators, Tenet Healthcare (NYSE: THC) and Surgery Partners (Nasdaq: SGRY), said their outpatient business, which focuses mainly on acute care, will be largely shielded from the cuts.
During the company’s Q1 earnings call, Tenet Healthcare CEO Saum Sutaria said that the company’s ambulatory platform United Surgical Partners International (USPI) is poised for growth despite cuts.
“We see significant opportunity for growth,” Sutaria said during the call, adding that while Medicaid remains a concern, it has less impact on Tenet’s ambulatory division than on hospitals.
“We don’t have as much exposure to Medicaid in our ambulatory setting,” he said. “While exchanges are relevant, they’re less impactful than the hospital segment.”
And Surgery Partners, another major player in the ASC sector, said its exposure to Medicaid and exchange-based plans is under 5%.
“We can confidently report that we don’t have material exposure in the near to mid term to any tariff-related price increases, nor do we believe there is a substantial risk to our supply chain regarding potential legislative changes to Medicaid and exchange based reimbursement programs,” CEO Eric Evans said during Surgery Partners’ Q1 earnings call.
A constantly changing landscape
Despite some leaders in the industry feeling relatively insulated, operators will still need to brace for a constantly changing health care landscape.
On Monday, the Centers for Medicare & Medicaid Services (CMS) also proposed a rule to close a Medicaid tax loophole that allowed states to inflate federal payments and divert funds for non-Medicaid purposes.
“Some states have exploited these tax loopholes to take money from federal taxpayers and then simultaneously spent “state” money on new benefits for illegal immigrants,” CMS wrote in a press release. “This regulatory move is projected to save taxpayers more than $30 billion over five years and continues CMS’ work in ensuring this vital safety net continues to be available for the country’s most vulnerable populations in the future.”
On Tuesday, CMS and the agency’s Innovation Center also outlined a new strategic vision focused on lowering health care spending and preventative care.
The ongoing hot-button topic of site neutrality once again found itself in the spotlight.
“Innovation Center models can require site-neutral payments across settings to reduce costs and reinvest hospital capacity in outpatient and community-based care through changes to certificate of need requirements,” a CMS white paper stated. “Models can support expanded scopes of practice, virtual care, and at-home care so people can receive care more flexibly.”
