Questions remain about the priorities and financial picture of Kansas City’s pediatric hospital after Children’s Mercy announced last week it would eliminate 115 jobs and shuffle 473 others to an outside contractor.

In a statement, hospital leaders blamed rising costs and insufficient insurance reimbursement rates and said it needs to adapt to survive.

“We continue to evolve our organizational structure to ensure we can remain one of only 28 independent, freestanding children’s hospitals in the country focused on kids,” the statement said.

The layoffs come on the heels of a change to insurance options at Children’s Mercy that made national headlines, sparking viral conversations around Kansas City and causing panic among patients’ families who could lose access to care. The nonprofit hospital announced in October that, beginning next year, it will not be included in any insurance plan sold through the Affordable Care Act marketplace, leaving 400 families currently getting care from the hospital without in-network access to the hospital or its affiliated physician practices.

In a statement, it blamed the insurance carriers for not being “willing to cover the specialized pediatric care we provide.” Carriers countered that the hospital’s prices are too high.

With both the insurance dispute and the recent job cuts, Children’s Mercy hasn’t disclosed financial details. It’s still unclear how reasonable the ACA insurance carriers’ reimbursement offers to the hospital were, or how much the layoffs would actually reduce the hospital’s $1 billion-plus payroll or affect its seemingly healthy bottom line. 

But while Children’s Mercy’s immediate financial picture doesn’t appear to be dire, the cuts come at a time when the entire healthcare economy is bracing for big changes. 

The costs of operating a hospital continue to rise. At the same time, providers are staring down imminent funding losses coming in the new year, when budget provisions adopted under the federal law commonly referred to as the One Big Beautiful Bill kick in. 

“All providers across the country are focused on efficiency and productivity,” Patrick Zagar, an analyst with S&P Global, said in an interview with The Beacon earlier this year. “Everyone is looking at their expense footprint, and a lot of times there is room to improve or to become more efficient on the nonclinical side.”

Who got cut?

Children’s Mercy said the jobs it eliminated last week, amounting to just over 1% of its workforce, were primarily nonclinical administrative, leadership and support roles. 

Another 473 billing and scheduling jobs being shed will be transferred to Ensemble Health Partners, an Ohio-based “revenue cycle” services company.

In a letter filed with the state, the hospital said it would close its internal billing department at the Hospital Hill campus on Feb. 6. 

The hospital’s effort to tighten its belt by trimming its payroll started this summer, when Children’s Mercy offered early retirement to an undisclosed number of employees. 

The hospital has not said which employees were eligible for a buyout, how many accepted it or how much money it saved. But officials said at the time that the offer was “a thoughtful approach to managing our workforces” and not an indication of immediate financial trouble. 

Healthy finances

For now, the hospital’s finances look good. Analysts point to Children’s Mercy’s trending growth in surgeries and patient traffic and its ongoing work to prepare for the disruptions heading for the healthcare sector and a $1.7 billion building project on its Hospital Hill campus.

In fiscal year 2025, Children’s Mercy made $418.5 million in excess revenue, up $134.2 million from the previous year. Operating revenues for the year were $2.1 billion, up 7%. And hospital admissions and inpatient and outpatient surgeries all saw growth from two years earlier. 

Its dominant position in Kansas City is also growing. Children’s Mercy’s pediatric market share jumped to 88% in 2025, compared to 83% two years earlier, according to S&P Global Ratings.

The hospital’s bond rating has also remained strong. In May, S&P Global raised the hospital’s bond rating to AA from AA-, while Moody’s Ratings affirmed its current Aa2 rating of the hospital.

Analysts said the rating “reflects CMH’s dominant market position as the premier provider of pediatric services in the hospital’s expansive primary service area across regions of Kansas and Missouri.”

Rising expenses

Although the financial picture has been generally rosy for Children’s Mercy, the hospital is beginning to see signs of concern. During the nine-month period that ended March 31, the hospital reported that “revenues, gains and other support in excess of expenses” — basically profits — declined to $219.6 million, down $42.8 million from the same period of 2025.

In the same period, the hospital’s rising operating expenses, which jumped 14%, were outpacing its growing revenues, which went up by 11%. Expenses going up at a faster clip than revenue are never good for budgets.

The hospital told bond investors in the statement that several factors accounted for its increased expenses:

• Salaries, wages and benefits jumped 10.9%.
• Supplies and pharmaceutical costs increased 11.3%, largely due to inflation.
• Purchased services like consulting costs, including those related to a change in electronic medical record systems, climbed 29.5%.
• And other operating expenses went up 29.5%.

Children’s Mercy’s recent spending includes $10.3 million for a joint operating agreement with Mercy Hospital in Springfield and expenses related to launching the new electronic medical record system. The hospital’s switch from Oracle, formerly Cerner, to Epic went live in March following a total investment of $140 million.

Looming cuts

In addition to high inflation in the price of drugs and supplies and soaring labor costs, Children’s Mercy will have to absorb a loss of government subsidies too, thanks to President Donald Trump’s 2025 budget bill, the One Big Beautiful Bill.

It’s all a reason, Zagar said, for hospitals to batten down the hatches.

“Even in a normal year,” he said, “you’ve got some kind of deficit to make up because your revenue isn’t growing as quickly as your expenses.”

When you layer on top of that the changes from the One Big Beautiful Bill, Zagar said, “that could be even more motivation to get operations as efficient as possible.”

Children’s Mercy anticipates losing $26 million in government subsidies due to the legislation in fiscal year 2030, and $39 million in fiscal years 2031 through 2038, according to the hospital’s recent bond disclosure statement.

Beyond that, the hospital will also see other losses thanks to the bill, which cut $1 trillion from federal Medicaid spending. Since approximately half of Children’s Mercy’s patients are covered by the government health insurance program, if states decrease reimbursement rates in response to the lost federal funds, the economic shift will be noticeable.

Plans for growth

But Children’s Mercy is still planning to grow in the face of these challenges and maintains that growing is essential to its long-term success. But it will need to lean on some of its financial cushion to do so. 

Children’s Mercy hopes to pay for the $1.7 billion Adele Hall Campus near Crown Center with $1.02 billion in operating cash flow and cash, according to the bond statement. Financing will also include up to $500 million in debt and $200 million in philanthropic gifts.

The building project, including a new medical tower, will increase overall hospital capacity by 25% to 30%.

If Children’s Mercy doesn’t invest in its main campus, leaders said, it will soon run out of room for the lucrative speciality services provided there. 

In other words, they need the space. Within five years, hospital leaders estimate the current Hospital Hill facility would have capacity for only 67% of patients in need of beds and for only 40% of newborns needing a spot in the neonatal intensive care unit.

Like other children’s hospitals, Children’s Mercy wants to attract children from greater distances to the specialized — and lucrative — care it provides on its flagship Kansas City campus. It’s part of the hospital’s ongoing shift from local children’s hospital to regional specialty hub for pediatric care. 

To that end, the hospital is also investing in expanding its geographic footprint deep into Kansas and Missouri. In the last two years, Children’s Mercy has expanded its Overland Park facility and added or expanded care in Springfield, St. Joseph and Joplin in Missouri and Wichita, Topeka and Junction City in Kansas.

The hospital hopes the geographic growth will help it cast a wider net for patients to support the specialty care it provides in Kansas City. That includes organ transplants, cancer treatments and gene therapy.

“There are fewer and fewer enterprises like ours that will cover larger footprints,” Children’s Mercy CEO Dr. Alejandro Quiroga said in an April interview with The Beacon. “The way I like to think about it is, we are in the business of ultra rare conditions.”