Some civilian children’s hospital programs could face severe cutbacks if lawmakers don’t reverse a Defense Department rule on health care reimbursements that’s upending their financial plans, officials from the medical centers warn.

The issue is expected to be among dozens of topics debated as part of the annual defense authorization bill in coming weeks, but is one of only a handful of provisions of the sweeping defense policy bill that could have broad repercussions both inside and outside the military community.

In a letter to House and Senate Armed Services Committee leaders on May 13, members of the Children’s Hospital Association warned the issue is already leading to “drastic rate reductions … which may impact access to care in some of the major defense communities across the country.”

Just a few days earlier, members of The Military Coalition — 35 organizations advocating on military and veterans issues — warned lawmakers that the reimbursement problems “have the potential to risk the health of military kids, harm quality of life for those serving our nation, and ultimately undermine mission readiness.”

The concerns stem from a Defense Department rule change in fall 2023 which changed payment rates for Tricare patients at non-military children’s hospitals and cancer treatment centers.

Since October 2023, the Defense Health Agency has tied its reimbursements to Medicare rates, a move that brings the facilities in line with federal payouts to other private-sector hospitals.

Agency officials in fall 2023 acknowledged that at least 14 children’s hospitals providing care to children near military bases and facilities would be negatively affected by the change, but projected the military will save up to $45 million annually in taxpayer funds.

Greg Raymond, president of Children’s Hospital Colorado Southern Region, said his facilities serve five military bases, and medical services to military children make up roughly 20% of their workload. Officials there have expanded programs in recent years to match the current and anticipated growth in military families in the area.

“But now we’re seeing a decrease of 40% in reimbursements, even though we’re providing the exact same level of services we provided prior to this rule being implemented in October,” he said.

“That’s going to force our team to make decisions around what programs to continue, what programs to consolidate or what programs to cut. And that will impact all kids, not just military kids.”

Raymond argues that treating children’s hospitals the same as facilities focused on adult or elderly care is unfair because of the additional complications of caring for kids. His hospital has extra staffing requirements for monitoring youth, extra costs related to assisting entire families, and specialized programs aimed at easing the fears of young patients.

In April, a federal judge in Colorado turned down a legal challenge from the hospital challenging the rule change, saying it was within the Defense Department’s authority to adjust their reimbursement rates.

The issue has caught the attention of several members of Congress, and already has prompted a requirement in the House Armed Services Committee’s authorization bill draft to study the issue and its potential impact on local community health care options.

Supporters worry a future study may not be fast enough to provide relief for the affected medical centers. Children’s Hospital Association officials said at least nine children’s hospitals located near military installations in states like California and Virginia are facing revenue decreases of 30% or greater because of the Defense Health Agency decision.

Raymond said his staff will have to start discussing program and staffing reductions by the end of the year if a move isn’t made to fill the multimillion-dollar void created by the rule change.

“We won’t not limit services just for one cohort and patients versus another based on whether they have TRICARE or they have Medicaid or they have a commercial insurance product,” Raymond said. “But this is going to lead to cuts that will impact all the kids in our community.”

Lawmakers on the House Armed Services Committee are expected to revise their draft of the authorization bill during a marathon mark-up session on May 22. Senate Armed Services Committee officials will follow suit in early June, with designs on having a final product approved by both chambers of Congress sometime this fall.

Leo covers Congress, Veterans Affairs and the White House for Military Times. He has covered Washington, D.C. since 2004, focusing on military personnel and veterans policies. His work has earned numerous honors, including a 2009 Polk award, a 2010 National Headliner Award, the IAVA Leadership in Journalism award and the VFW News Media award.

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