Hospitals are still absorbing the financial shock of last summer’s One Big Beautiful Bill Act, and Capitol Hill is already preparing another round of federal funding cuts.
Republican lawmakers have agreed on a two-track plan to fund the Department of Homeland Security and immigration enforcement, with healthcare spending once again in the crosshairs as a funding offset. The House blocked the DHS portion on April 2 and is now in recess until April 14, a sign of the internal GOP friction that could complicate — but is unlikely to stop — the broader effort, according to The New York Times.
Senate Budget Committee Chair Lindsey Graham, R-S.C., has pledged to work with Republican lawmakers to meet President Donald Trump’s request “to have reconciliation done by June 1.”
The Trump administration’s fiscal year 2027 budget, released April 3, adds another accelerant: It proposes $15.8 billion in HHS cuts — a 12.5% reduction from 2026 — with significant cuts to the National Institutes of Health, among other healthcare programs.
Hospitals are already staring down the barrel of up to $25 billion in annual revenue losses stemming from OBBBA Medicaid cuts. With another reconciliation bill taking shape, the next question on hospital leaders’ minds is how much deeper — and faster — this next round of healthcare cuts could hit.
Reconciliation is Congress’ legislative fast lane, allowing the Senate to pass major fiscal legislation with 51 votes rather than the 60 required to overcome a filibuster. Republicans used it on July 4 to pass the OBBBA, which includes the largest cuts to Medicaid since the program began in the 1960s, cutting nearly $1 trillion over 10 years, according to The Hill.
They are now preparing to use it again, this time to fund border security and immigration enforcement estimated at up to $200 billion, with healthcare savings serving as a primary offset. The timeline is aggressive, with lawmakers aiming to pass legislation within 60 to 90 days, Axios reported March 30.
The baseline: What hospitals are already absorbing
Hospital finance teams are already stress-testing against what has already been signed into law.
The OBBBA introduced Medicaid work requirements for adults ages 19 to 64 — 80 hours per month of work, school or community service — effective 2027, along with more frequent eligibility redeterminations and new limits on state-directed managed care payments and provider taxes.
The cumulative financial impact on hospitals is significant.
Kodiak Solutions projected up to $25 billion in annual revenue reductions. Premier estimated $68.5 billion in hospital revenue at risk over 2026 and 2027. An analysis by The Commonwealth Fund projects safety-net hospitals may see operating margins shrink by nearly 30%, while the wider hospital sector faces a “new normal” marked by rising costs, a shifting payer mix and persistent margin pressure, according to Kaufman Hall. Fitch Ratings maintained a “neutral” sector outlook for nonprofit health systems but flagged the OBBBA as a significant drag on a margin recovery that remains uneven across the sector.
The human consequences of work requirements has already been documented, with one state serving as a cautionary tale for hospitals.
A Government Accountability Office study of Georgia’s 2023 Medicaid work requirement rollout — the closest existing benchmark — found the program led to coverage losses without increasing employment, and that the state spent twice as much on administration as on enrollee care. Many beneficiaries were disenrolled due to difficulties navigating reporting systems, leading to higher uncompensated care costs.
What’s back on the table
Republicans are eyeing four main healthcare levers as offsets in the next reconciliation bill:
- ACA cost-sharing reductions. One proposal would fund ACA cost-sharing reductions directly, eliminating the “silver loading” workaround insurers currently use to compensate for the loss of cost-sharing reductions payments. The Congressional Budget Office estimates this would reduce gross benchmark premiums by 11% but increase the number of uninsured individuals by an average of 300,000 annually through 2035, while saving the federal government up to $37 billion.
The Senate parliamentarian rejected this approach in 2025, meaning it would need to be restructured to survive the reconciliation process again, according to The Hill. The Federation of American Hospitals has also warned that CMS’ proposed rule changes for 2027 could reduce Marketplace enrollment by 1.2 million to 2 million people and increase premiums 2% to 3%.
- Site-neutral payments.Site-neutral payment expansion is already live for drug administration services in off-campus hospital outpatient departments, a move CMS projected would reduce outpatient spending by $290 million. The American Hospital Association, on the other hand, said the move will exacerbate hospitals’ financial pressures.
A Kaufman Hall analysis warned health systems with outpatient strategies built around campus-based departments face acute exposure, particularly in markets where Medicare Advantage penetration exceeds 70% and CMS rate changes ripple rapidly into private payer contracts. House Budget Chair Jodey Arrington, R-Texas, told Axios he would like to see site-neutral provisions in the reconciliation bill but expressed skepticism they would make it in, citing concern about what he called “a false narrative that we’re cutting Medicare.” - Medicare Advantage upcoding. Mr. Arrington also cited a crackdown on Medicare Advantage upcoding as a likely target, an issue that has bipartisan support. A group of Democratic senators sent a March 30 letter to CMS Administrator Mehmet Oz, MD, urging stricter upcoding restrictions and calling on HHS to incorporate two years of diagnostic data into its risk-adjustment methodology rather than one. The senators warned that payers could work around CMS’ proposed 2027 rate notice — which would exclude diagnoses from unlinked chart reviews — by linking chart reviews to specific encounters.
MedPAC estimated in 2025 that $40 billion in Medicare overpayments resulted from coding intensity. Sens. Jeff Merkley, D-Ore., and Bill Cassidy, MD, R-La., introduced the No UPCODE Act in March 2025 to address the issue directly, though the bill has not passed and drew insurer opposition over Medicare funding concerns. - Additional Medicaid cuts. Lawmakers are cautious about further Medicaid cuts given the scope of what the OBBBA already enacted, but limiting Medicaid coverage for undocumented immigrants has resurfaced, and CMS has issued guidance to states on how to implement OBBBA’s Medicaid coverage restrictions for noncitizens, which take effect Oct. 1.
States are not waiting for federal action to address resulting budget shortfalls. Iowa Gov. Kim Reynolds signed legislation raising the state’s Medicaid managed care organization tax rate from 0.925% to 3.5%, retroactively to Jan. 1, to offset a projected $90.6 million Medicaid deficit in fiscal 2026, according to the Iowa Capital Dispatch. About 22 other states are pursuing similar insurer tax strategies before any federal ban takes effect, according to a Dec. 1 report from KFF. Cuts to the 340B drug pricing program and prior authorization reform have also been floated as possible inclusions in a second reconciliation vehicle, according to the Healthcare Financial Management Association.
The White House’s fiscal 2027 budget
The Trump administration’s fiscal 2027 budget, released April 3, requests $111.1 billion for HHS — a 12.5% reduction from 2026 — including a $5 billion cut to the National Institutes of Health. It would eliminate three NIH institutes and create a new entity called the Administration for a Healthy America that would consolidate functions from Health Resources and Services Administration, Substance Abuse and Mental Health Services Administration, the CDC and the Office of the Assistant Secretary for Health. The Hospital Preparedness Program — a $240 million platform hospitals rely on for surge capacity and disaster response infrastructure — is also slated for elimination.
Despite an aggressive June 1 target for passing legislation, the path forward is far from certain, according to Politico. Republican lawmakers remain divided, with hardline conservatives pushing for deeper spending cuts and moderates wary of the political risks tied to healthcare cuts.
The House returning from recess April 14 is the first concrete opportunity to assess whether the DHS standoff has been resolved and what it means for reconciliation momentum.
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