Written by Caroline Hudson and published on July 9, 2025.
Children’s hospitals say the trickle-down effects of reduced Medicaid funding due to the recently passed healthcare cuts will hit one of the most vulnerable populations the program was built to protect.
Medicaid changes in the law President Donald Trump signed Friday weren’t aimed directly at children enrolled in the program. However, leaders at children’s hospitals say new limitations on state-directed payments and provider taxes will put a dent in revenue and could force them to cut services.
The effects on children’s hospitals will go on to negatively impact adult providers as well, leaders said. Medicaid cuts will be keenly felt by the children’s hospitals since a large percentage of patients at those facilities, often more than 50%, rely on Medicaid.
The new law delivers roughly $1 trillion in cuts to healthcare programs over the next decade, much of which will come from federal Medicaid funding. The changes will go into effect over the next couple of years.
The Trump administration and most Republican legislators framed the steep Medicaid cuts as a way to eliminate fraud and abuse in the system and to preserve funds for the populations who really need it, including children.
Children’s hospitals see the cuts differently.
“Whether you’re a political blue state or a political red state, I think all the children’s hospitals across the country now are going to be looking at what we can and can’t continue for every child. It’s a disappointing situation,” said Dr. Tom Shanley, president and CEO at Lurie Children’s Hospital.
Healthcare leaders said one big sticking point is the new restrictions on supplemental Medicaid reimbursement, which has served as a lifeline for many hospitals already losing money on caring for patients covered by the government program. For example, state-directed payments allow states to require health plans reimburse providers at a certain rate, closing pay gaps between Medicaid and other payers. Provider taxes allow states to charge providers fees and use the money to help fund Medicaid services.
Under the law, new state provider taxes are banned, and existing taxes are reduced to 3.5% of a provider’s net patient revenue over several years. State-directed payments are limited to 100% of Medicare rates for expansion states and 110% for nonexpansion states.
The payments Phoenix Children’s receives from Medicaid managed care organizations covers 72% of the cost to provide care. Supplemental payments bring coverage closer to 90%, said President and CEO Bob Meyer, who is retiring this summer and will be succeeded by John Nickens.
“[Supplemental reimbursement] gets us to the point where we can actually treat Medicaid patients, not discriminate against them, and provide full services,” Meyer said. “We’re out of business if we have to go back to 72% of costs. I’m being that frank about it.”
About 65% of patients at Phoenix Children’s are enrolled in Medicaid.
Meyer estimates a $75 million reduction in Medicaid reimbursement each year due to the recent changes. He said Phoenix Children’s will try to make up for the lost funding through efficiency measures, such as using artificial intelligence to streamline administrative tasks.