Children’s Hospital Colorado is suing the Department of Defense over changes to insurance reimbursements that the hospital system claims could make it impossible for them to maintain current services in Colorado Springs.

“DHA’s arbitrary reimbursement reductions will have a negative impact that will make it impossible to sustain our current pediatric health care services and programs that are available to our entire community,” said Greg Raymond, Southern Region President at Children’s Hospital Colorado, Colorado Springs in a statement. 

The suit is an unprecedented step for the hospital, the statement said. 

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Children’s Hospital expects to see a $17 million-plus reduction in its Tricare reimbursements each year because of the changes that lower reimbursements for outpatient services, according to the lawsuit. The Colorado Springs location is expected to lose $13 million annually and the Denver location is expected to lose $4.5 million. The DOD told Children’s Hospital to expect a $11 million reduction annually, the suit said. 

Across the country, the reimbursement changes are expected to save the government $35 million, so even by the DOD’s estimates Children’s Hospital is expected to absorb about a third of the cuts nationally. 

Since opening in 2019, Children’s Hospital in Colorado Springs has provided care to 15,000 children in military families for care such as outpatient surgeries, mental health therapy and cancer treatment, the news release said. The Tricare change that went into effect Oct. 1 will cut into the hospital’s outpatient reimbursements by 40% because of that high volume of military families. 

The Department of Defense said in its published rule that it is changing reimbursement rates to align with Medicare reimbursement as required by law. 

However, in its lawsuit Children’s Hospital argues the DOD developed an entirely new reimbursement model and ignored how the rule is “completely impracticable” for children’s hospitals. 

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The cuts to reimbursements will force the Children’s Colorado to “dismantle years of work that has gone into building pediatric departments, center and service lines” for seriously ill children, particularly in Colorado Springs, the suit states. 

The Department of Defense is expecting to provide temporary payments to help hospitals that are essential to Tricare operations receive 10% of their revenue through active duty families and provide 10,000 outpatient appointments annually to active duty families. The payment would cover 115% of hospitals’ costs for outpatient services, the DOD said in its final rule. 

In comments on the Federal Register replying to those critical of the reimbursement changes, the DOD leaned on the payments to defend cuts to children’s hospitals.

“These provisions can be implemented for children’s hospitals without jeopardizing access for TRICARE beneficiaries, because of the ability of children’s hospitals to apply for (general temporary military contingency payment adjustment),” the rule said. 

The DOD did not respond immediately.

Children’s Colorado said in its suit it cannot determine from its own historical data whether it will qualify for the payments. The DOD told Children’s Hospital the Denver location would not meet one of the criteria. 

Even if both locations receive the payments, the Colorado Springs hospital would still lose $10 million annually and the Denver location would lose $2.5 million, the suit said.

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The lawsuit asks the court to declare the reimbursement changes invalid for children’s hospitals.

In its statement, Children’s Colorado said its staff has worked to educate elected officials and Defense Health Agency officials about the impact of the rule change since it was proposed in April and the the suit is an attempt to preserve local access to health care. 

“This is not just a reimbursement issue; this is an equity issue that will compromise the care available to all families – not just military families – in southern Colorado,” Raymond said in the statement. 

Gazette writer Zachary Dupont contributed to this story.