Hospitals fear Colorado Medicaid changes could force service cuts

Hospitals and healthcare providers worry that one of the key planks of Gov. Jared Polis’ budget-balancing plan this year — efforts to slow the rise of Medicaid spending — will force health systems to reduce services for both publicly and privately insured patients.

On Wednesday, the Democratic governor presented his financial plan for the 2026-27 fiscal year to the Joint Budget Committee, kicking off a four-month process to shape the $50.6 billion state budget and particularly the $18.6 billion general fund that legislators control. Polis first announced the budget plan on Oct. 31, drawing business attention for his plan to convert state-chartered Pinnacol Assurance into a fully privatized worker’s compensation insurer and use an expected $400 million in proceeds to help balance the budget.

But that is just the largest single maneuver that the governor is seeking to make to close an estimated $800 million shortfall caused partly by federal tax cuts that reduce revenue going into the budget. His other big proposal is to cut a projected $631 million growth in Medicaid spending down to $297 million, saving the state more than $300 million through a series of changes that reduce compensation to Medicaid providers and limit services that enrollees in the low-income public-health program receive.

Even more so than with the Pinnacol proposal — which once again brought frustration from Rep. Emily Sirota, the Denver Democrat who chairs the JBC — the Medicaid changes elicited criticism from members of both parties. Democrats questioned whether the proposal would hurt the health of Colorado’s poorest and most vulnerable residents, while Republican pilloried Polis for not proposing staffing cuts instead, setting the stage for 0combative and difficult budget negotiations.

Polis justifies Medicaid changes

Polis said Medicaid changes are needed not just to achieve a balanced budget next year but to bend the cost curve of a program whose expenses have risen 8.8% annually for the past decade — twice the rate of growth of the Taxpayer’s Bill of Rights revenue cap. Without reducing excessive spending that doesn’t seem to improve public health, continued growth of Medicaid will require cuts to transportation, public safety and every area of the budget except K-12 education, which is constitutionally protected, he warned.

“Basically, this trend will crowd out all other public spending we will do … We don’t think that’s the right trend for the state,” Polis told JBC members as they pushed back on his plan. “We think highways and roads are important. We think public safety is important.”

Sen. Judy Amabile, D-Boulder, said that some of the cuts, particularly around home care, could literally leave Coloradans unable to access providers for life-saving services, however. And Sen. Barbara Kirkmeyer, R-Brighton, argued already-struggling rural hospitals that are unable to recoup costs from the state are more likely to eliminate services, hurting people on all types of insurance who can’t access care.

Hospital leaders worry about revenue losses

Colorado Hospital Association leaders noted that uncompensated care has increased 123% since 2021, including 60% last year after an unwind of a pandemic-era Medicaid expansion forced a lot of people off the program, only to see many remain uninsured. Money-losing hospitals have shuttered behavioral-health centers and maternal-care units — including a recent closure of Delta Health’s labor-and-delivery unit — and must make hard choices if Medicaid reimbursements are cut further, president/CEO Jeff Tieman said.

“Hospitals have been the pressure valve in Colorado’s health care system, absorbing cost increases, workforce shortages, growing demand, increased regulation and rising uncompensated care,” Tieman said in a statement. “But even the strongest system can only take so much pressure. Threatening critical state healthcare funding will have real and lasting consequences for patients and communities across the state.”

Even with the proposed changes, Medicaid spending would still grow 5.6%, and its nearly $300 million budget increase is equivalent to the total budgets of nine other departments combined, noted Mark Ferrandino, director of the Office of State Planning and Budgeting. Without the changes, program costs would ramp up 12%, and the increased spending in that one program would exceed the allowable budget growth under TABOR.

A look at specific Medicaid changes

Polis also cut Medicaid to balance the current fiscal-year budget by nixing a 1.6% provider-rate increase, reinstating prior-authorization requirements on outpatient psychotherapy and cutting pediatric behavioral therapy reimbursement rates, among other moves. All those changes would continue under his current budget, and further spending changes would include:

• Reducing provider reimbursements to 85% of the level of Medicare benchmark rates — a cut that would still leave Colorado paying above the national average of 75% of Medicare reimbursements, Ferrandino noted;
• Capping annual dental benefits for Medicaid members at $3,000, which still represents a 100% increase from the $1,500 cap in 2023 but pulls back a legislative decision after then to remove caps altogether from this spending area;
• Adjusting payment methodologies for home health nursing and therapy services to reflect the amount of time spent on these services by providers, which aligns with current private-market insurance billing practices; and,
• Requiring prior authorization for a number of services that have seen disproportionate growth in recent years, such as drug-testing panels.

Bipartisan pushback

Kirkmeyer was most critical, saying that even as the state boosts the number of employees by 355 next year — about one-third of whom are going to the judicial department because of new laws expanding the number of state judges — patients are getting hurt. Parents of adult children with disabilities wonder where they’ll get care if providers refuse lower rates, those with autistic children already are scrambling due to previous cuts and rural residents are watching to see if their hospital will be the next to end labor and delivery, she said.

“It is not just people on Medicaid that are being impacted by lack of healthcare access in this state,” said Kirkmeyer, who called the budget proposal “unreasonable.” “This isn’t a trim. It’s a blow to families that are already fighting to get care.”

Amabile, meanwhile, warned that the long-term consequence of limiting home-health services would be increased institutionalization of adult patients who can’t care for themselves, which will represent an even larger burden on the state budget. And continued cuts to provider rates will force even fewer doctors and healthcare professionals to care for a growing load of Medicaid patients, which will exacerbate health problems and leave people seeking more acute — and more expensive — care, she said.

Polis argued, however, that the increase in Medicaid spending has not produced better health outcomes and that some of the steps will rein in low-value care that is not helping the very people who are getting it. Even as he is suggesting these cuts, the state is paying national health-care consultants to look at why Medicaid costs in Colorado are rising more quickly than in other states, and he and Ferrandino expect to have suggestions from that study early next year that could lead to further improvements in the system, he said.

Hospitals suggest alternatives to Medicaid cuts

“We don’t want to throw people off of Medicaid. We want to serve people as we can,” said the governor, emphasizing that he is not seeking any changes to Medicaid eligibility that would disqualify state residents from being in the program. “We are focused on where spending increases can lead to the best possible outcome for Coloradans.”

Finding more than $300 million in other cuts to offset the changes Polis has proposed will be no short order for legislators and hospital advocates, however.

In a statement Wednesday, CHA suggested that Polis should look at reducing administrative spending in the Colorado Department of Health Care Policy and Financing, the stage agency that administers Medicaid. The organization noted that HCPF spending continued to rise even as Medicaid spending declined and suggested that more transparency is needed in the department’s budget.

Also, the state could reduce spending associated with new mandates legislators placed on hospitals in recent years, ranging from financial-reporting requirements to reimbursement limitations associated with the Colorado Option insurance plans, CHA suggested. Removing regulatory burdens from hospitals would allow them to put more revenues to the services, the group said.