Children’s Hospital Colorado is warning it may shut down the cancer treatment center at its Colorado Springs hospital and make other cuts in key departments this year because of a change in how military families’ insurance pays for care.
In October, Tricare — which insures active-duty military members and their families — changed the way it sets payments to children’s hospitals, tying them to what Medicare would pay for the same services, as the insurer does for services to adults at civilian hospitals.
The U.S. Department of Defense said the change would save the military up to $45 million in taxpayer funds annually, according to the Military Times.
Children’s Hospital Colorado estimated it has lost about $2.1 million a month since October compared to how Tricare used to pay, with the health system’s Colorado Springs facilities taking a bigger hit than those in Aurora, because of the large military presence on the southern end of the Front Range.
The system estimated about 16,000 kids insured by Tricare receive care at Children’s Hospital Colorado facilities, and about one in five children who receive care at the Colorado Springs hospital and clinics have military coverage.
The $25.2 million annual loss is a relatively small percentage of Children’s budget of more than $1 billion a year, but officials with the health care system say the Colorado Springs hospital could close its cancer center and make cuts in its neonatal intensive care unit and emergency departmentif nothing changes.
Children’s Hospital Colorado sued the Defense Department over the billing change in September, warning that it could lead the system to make the following cuts:
Closing the Center for Cancer and Blood Disorders
Closing the infusion center
Treating fewer babies in the neonatal intensive care unit
No longer operating a level two trauma center
Making unspecified cuts to the emergency department
Those cuts are still on the table if nothing changes, Children’s spokeswoman Leila Roche told The Denver Post on Friday.
Children’s Hospital Colorado hasn’t released a timeline, or specified whether it would make all the cuts at once or phase them in. The health system also hasn’t said whether its larger hospital in Aurora could face cuts in the future.
Children’s lawsuit against the Defense Department argued the agencydidn’t have the authority to change its payments that way, because Medicare isn’t set up for kids’ health needs. Federal Judge Nina Wang ruled in favor of the department in April, finding that the change was within its rights.
The change only affects certain outpatient facility charges, not reimbursement for inpatient care or professional services, such as a doctor’s charges, said Peter Graves, spokesman for the Defense Health Agency, which oversees Tricare. By law, Tricare is required to follow Medicare rules “to the extent practicable” in reimbursing providers, he said.
Before the change, Tricare paid the rates that hospitals billed, Graves said. Now, hospitals will receive at least enough to cover the cost of providing the care, which may be a decrease, he said.
“The billed amounts generally represent multiples of the actual cost to render the care, and few insurers or private payers reimburse the billed amounts,” Graves said in a statement.
On May 13, the Children’s Hospital Association sent a letter to leading members of the House and Senate armed services committees, asking them to work with affected hospitals on a solution. A group of organizations representing veterans and active-duty members also wrote a letter saying that the change would threaten access to care for families.
“This rule therefore has the potential to risk the health of military kids, harm quality of life for those serving our nation and ultimately undermine mission readiness,” the military organizations’ letter said.
Lawmakers haven’t ordered the Department of Defense to reverse course, but did include a provision in the defense reauthorization bill to study the effects of the payment change.
Not all children’s hospitals are expecting a significant hit to their revenue. Both the Department of Defense and Children’s Hospital Colorado said 14 facilitiesthat treat above-average numbers of kids of military members, including Children’s in Colorado, would bear the brunt of the cuts. The hospital estimated total revenueat those facilities would fall by 15% or more, while the department said only outpatient reimbursement for Tricare patients would fall that much.
Children’s said the high number of military facilities in the Colorado Springs area, plus a lack of other pediatric care options that accept Tricare, meant its hospital and clinics there got hit harder than many others. The Colorado Springs location lost money most years even before the change, which will cut outpatient revenue by about 40%, Roche said.
“If these cuts continue, our Colorado Springs hospital will feel the largest impacts due to the proximity to the five military installations, but the ripple effect will be felt across our entire system of care,” she said in a statement.
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