Potential Medicaid cuts would jeopardize Pender Community Hospital’s maternity ward, which is one of the most active in Nebraska for the community's size.
The critical access hospital in Pender, which about 1,000 people in the northeastern part of the state call home, delivers about 120 babies a year. The facility operates on narrow margins, and about 40% of its obstetric patients are covered by Medicaid. If the Republican-led Congress follows through with proposals to limit Medicaid funding, Pender Community Hospital may have to consider service cuts — including to around-the-clock anesthesia and its obstetrics unit, CEO Laura Gamble said.
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“If they put caps on Medicaid, I don’t know if we would be able to continue OB,” she said. “That would be devastating to us. We are the lifeblood of this town."
Pender Community Hospital is not alone. Even before the threat of lower federal funding, high operating costs and reimbursement pressure had forced many rural providers to close maternity wards, creating vast care deserts throughout the country.
Rural hospital operators had warned the situation would get worse unless Medicare and Medicaid rates went up — and any additional cuts could cement service reductions and layoffs that limit access.
Republican congressional members are targeting spending reductions in Medicaid, among other federal programs, to make way for President Donald Trump’s expected tax cuts in the looming budget reconciliation bill. These proposals include replacing Medicaid’s financing structure, where the federal government pays a proportion of states’ Medicaid costs, with a per capita system that offers a fixed amount of federal funding per patient or block grants that cap overall Medicaid spending.
Other proposals focus on Medicare, such as by eliminating hospital outpatient departments’ payment boost relative to independent clinics under site-neutral policy.
Rural providers are pushing for exemptions from any potential changes to federal policy that may limit Medicaid or Medicare funding. Executives argue their organizations cannot sustain cuts to Medicaid and Medicare, which typically cover most patients treated in rural facilities.
“We need to find out how rural hospitals and clinics can be held harmless in this discussion,” said Brock Slabach, chief operating officer of the National Rural Health Association.
In preparation for potential federal funding reductions, rural hospitals and others are streamlining billing and claims management, renegotiating contracts with insurers and vendors, and deferring infrastructure improvements and equipment purchasing.
"Supply costs have gone through the roof, so we're trying to make sure we are using our contracts correctly," Gamble said. Pender Community Hospital has about a 1% operating margin, she noted.
Rural providers hoping to boost revenue are limited by a patient population that skews heavily toward government-sponsored insurance coverage. Those facilities don’t have the financial reserves or the commercially insured patient population to mitigate reductions in government-sponsored insurance programs, experts said.
“I don’t think you can mitigate these massive Medicaid cuts,” said Edwin Park, a research professor at the Georgetown University McCourt School of Public Policy. “These cuts are so draconian and so large that providers wouldn’t have ways to compensate for that.”
Some states are aiming to bolster their general funds in case they need to shoulder a bigger share of Medicaid funding.
With less federal support, rural counties may lean on taxpayers more to sustain Medicaid programs. But still, higher taxes likely wouldn't offset federal funding reductions, said Benjamin Anderson, CEO of Hutchinson Regional Health System in central Kansas.
“There is not an amount we can tax our local communities from a property tax standpoint to offset those federal cuts,” he said. “It would result in a loss of access, and I don’t know if there is an awareness and appreciation at the federal level of the devastation this would cause middle America.”
If states aren't able to make up the federal funding gap stemming from Medicaid cuts, hospitals may close, experts said. In New Mexico, up to eight rural hospitals would be at risk of closing, said Troy Clark, president and CEO of the New Mexico Hospital Association.
“We are looking at anything we can do to protect rural hospitals, and I know some states are working on exemptions for hospitals of a certain size or payer mix,” he said.
Without those rural hospital carve-outs, federal funding cuts could make it harder to recruit physicians, an area where rural providers have historically struggled, industry observers said.
Medicaid reductions would strain an already tenuous staffing situation at Three Rivers Hospital in Brewster, Washington, CEO J. Scott Graham said.
Three Rivers may look to renegotiate vendor and insurer contracts and delay equipment purchases where possible, but those would have limited financial impacts compared with workforce changes, Graham said. The hospital may be forced to lay off staff, he said.
About 35% of the critical access hospital's patient population is covered by Medicaid, and it runs an operating loss of roughly $3 million. The hospital's financial outlook would become more acute if Congress follows through with proposals to eliminate what are known as Medicaid state-directed payments, which increase Medicaid managed care plans’ hospital reimbursement rates.
The Washington State Hospital Association and Washington State Health Care Authority last year submitted to the Centers for Medicare and Medicaid Services an application for 2025 Medicaid state-directed payments. But that application, which amounts to a roughly $1 billion boost to hospitals, hasn't been finalized by CMS and is in jeopardy amid talks to cut federal funding, a spokesperson for the hospital association said.
“Those payments meant the difference between having to lay people off or keeping them on,” Graham said. “We have budgeted under the presumption we will get those dollars, but taking this funding out of the equation would be very harmful to the financial viability of the hospital.”
Medicaid state-directed payments must be updated annually or every three years, depending on the agreement. The Mississippi Hospital Association hopes to secure a three-year arrangement with CMS, said Richard Roberson, president and CEO of the association.
“The Medicaid state-directed payment program has been the single biggest infusion for hospitals, and Medicaid cuts put a program like that under stress,” he said. “We’d like to get a commitment from CMS to lock down those payments for a three-year period so we provide some predictability and stability to hospitals.”
