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When hospitals enter into a contractual agreement with state, federal, and private insurers, they are required to abide by the terms of the contract. Thus you are correct in the sense that federal medicaid/medicare monies have enormous strings attached.

What you are missing is that many of the patients who come to these hospitals are not even Medicaid or Medicare recipients. There is no contract at all; they are simply treated for free. And they arrive carrying diseases not present in our native population, or with conditions that would have been minimized with American-style medical care but are now catastrophic.

It's certainly true that illegal aliens are only part of the problem. We have our own home-grown problem patients here. But at least the home-grown patients have Medicaid and sometimes Medicare coverage that helps compensate the hospital to some small degree; the foreigners do not.