Thought Leadership

3 things hospitals can do to prepare for debt ceiling negotiations

Ryan Colaianni
By Ryan Colaianni
posted May 25, 2023

Authored by: Ryan Colaianni and Evan Harris

The debt ceiling negotiations have major implications for healthcare. Here are three things that hospitals can do to prepare themselves.

After a rocky financial year in 2022, hospital margins and costs looked to be stabilizing over the last few months. While the latest 2023 Kaufman Hall noted slight improvements in hospital finances, these margins are still “razor-thin” and “near-zero levels, putting hospitals in a vulnerable position should a recession or a new public health emergency materialize.”

Like a movie that has too many sequels, the bad news impacting health systems just won’t stop. Hospitals may be vulnerable to delayed or reduced Medicare and Medicaid payments if the U.S. fails to reach successful negotiations on the debt ceiling by June.

In January 2023, the U.S. Department of Treasury announced that the country reached its $31.3 trillion borrowing limit. Treasury officials also said they would begin “extraordinary measures” to prevent a default. These measures, which include stopping new investments in several pension and retirement funds, will only last until early June.

Delays, like incremental reimbursement rates that fail to meet the current inflationary environment or cuts to Medicaid or Medicare, will be the latest in a dire economic situation for hospitals. Unlike a government shutdown, where essential services still function but government employees forgo their paychecks, failure to raise the debt ceiling would mean the U.S. has technically run out of borrowed money.

With this looming issue coming to a head on June 1, hospitals need be proactive about communicating the impact of any negotiations related to the debt ceiling. With 29% of federal spending dedicated to health programs at $1.9 trillion and 26% of all hospital care, physician and clinical spending dedicated to Medicare, there’s a lot at stake.

The good news is there are three ways hospital CEOs and health system leaders can prepare ahead of time to ensure patients, staff and the communities they serve feel informed:

1. Gather the data you need before communicating

Hospitals and health systems should know how much funding they receive for Medicaid and Medicare and what services would be directly impacted. Hospitals should also consider the long-term impact to their financial performance or negative implications on community investments and infrastructure upgrades. The more data hospitals have about the potential impact to federal healthcare reimbursements due to the debt ceiling negotiations, the better they can communicate about what’s at stake – and help legislators reach a compromise.

2. Prepare internal and external communications

Hospitals should prepare to communicate with staff, patients and the communities they serve about potential impacts to services and care. Patient concerns around access to services and keeping existing appointments will differ from those of doctors and other frontline staff. Be prepared to address a wide variety concern with the appropriate data and communication. While doing this, remember to be proactive and transparent about the impacts, not reactive and panicked. 

3. Be a source of truth

It’s more critical than ever to counter the value attack against hospitals and explain why delays in payments for Medicare or Medicaid could be disastrous for hospitals and doctors. A failed negotiation to raise the debt ceiling and bringing the U.S. close to, or causing, a default on debt obligations would be devastating for healthcare. Hospitals should be a source of truth and transparency for stakeholders, lawmakers and the public about what the true impact will be.

What to keep in mind about the debt ceiling negotiations

Increases in the debt ceiling are nothing new. Congress has raised the debt ceiling six times since 2017. However, heightened national political pressure between Congress and the Biden administration along with an uncertain economic landscape means all options are on the table. Congressional leaders have said contingency plans are being put in place that advises the U.S. Department of Treasury on which federal programs to fund, but Treasury officials claim they have no protocols or capacity to carry out that kind of prioritization plan.

Has the U.S. ever defaulted on its debt? No, although the federal decision? came within 72 hours in 2011. A similar congressional and White House showdown finally ended with a debt ceiling increase signed by President Obama, but it came at the cost of a credit downgrade a $1.3 billion increase in borrowing costs.

Regardless, health systems need to prepare for questions from patients, doctors and the public about how the impact to Medicaid and Medicare payments jeopardizes access to care and hospital services.