All eyes are on Capitol Hill as Congress mulls Medicaid funding cuts and the Trump administration takes steps to reduce federal healthcare funding.
CMS notified states April 10 of plans to stop approving federal funds for designated state health programs and investment programs that would require “creative interpretations” of the federal law for securing Medicaid dollars. The agency also plans to curb federal spending on duplicates and other state or federal efforts for nonhealthcare related services. House Republicans also approved the Senate’s 2025 fiscal budget blueprint that includes $880 billion cuts in federal healthcare spending, which likely would further diminish Medicaid funds.
“While the outcome of negotiations in Congress is uncertain, major cuts in federal Medicaid funding would be painful for hospitals, leading to an increase in uncompensated care and curtailing a key revenue source,” Moody’s wrote in their April 2025 quarterly report.
Hospital executives are planning for financial uncertainties and prepared to stay flexible. Rural, community and safety-net hospitals have a rockier road to financial stability, as their resources are more limited and proposed cuts would have an outsized impact on them.
Kemberly Blackledge, DSc, chief revenue officer and interim CFO of Nashville General Hospital, told Becker’s that financial stability is top of mind as her team forecasts and plans for the future.
“This is what I call tough times,” she said during an interview on the “Becker’s Healthcare Podcast.” “The anticipated challenges, the cutbacks, the inflation, federal regulations. But financial stability is real, and how can we provide services at the most reasonable or best cost and have financial stability? In order to do that, there has to be tough decisions.”
Five key points:
- Medicaid comprised 15% of revenue for nonprofit health systems and 54% of revenue for children’s, rural and city- and county-owned hospitals, according to the Moody’s report. For-profit hospitals are also affected by the cuts, with Universal Health Services reporting 29% of revenue coming from Medicaid and managed care; Community Health Systems has 15% of funding from Medicaid and HCA Healthcare reported 12% of revenue from these sources.
- Hospitals face these cuts while still overcoming the effects of the pandemic and labor shortages. The overall healthcare sector has recovered somewhat financially, with a median 200 days cash on hand, but Moody’s also said healthcare “will face stress given recent stock market declines.”
- Hospital and health system executive teams may need to reduce benefits or increase spending if Medicaid cuts go into effect, said Moody’s, and more uncompensated care may be on the horizon if the federal government doesn’t renew enhanced premium subsidies for people buying insurance on ACA exchanges next year. There are 24 million individuals purchasing plans on the exchange, and the Congressional Budget Office estimates another 2.2 million more could join by the end of this year.
- Hospitals have seen a sharp uptick in bad debt and charity care over the last three years. According to Kaufman Hall’s “National Hospital Flash Report,” bad debt and charity care per calendar day increased 14% last year compared to 2023, and 20% compared to 2021. The bad debt and charity care as a percentage of gross revenue also jumped 7% year over year, but was down 3% compared to 2021.
- Moody’s noted Congress could cut the enhanced Federal Medical Assistance Percentage, which could have cascading consequences. “Some states, in turn, might have to abandon Medicaid expansion, which would increase the number of uninsured,” the report said. “Congress could also seek to implement work requirements for Medicaid eligibility, which could also increase the number of uninsured and amount of uncompensated care. Some states are pursuing that but need approvals to go forward.” There are currently 13 states with work requirements in their Medicaid programs and 11 more considering them.
- The public health infrastructure is also under scrutiny as HHS cuts funding and lays off thousands of workers. Hospitals will pick up the slack as federal and state public health funding diminishes.
“When something occurs with the public health department, I have to evaluate our organization, not just myself, but our organization must evaluate what is the outcome of this impact to our health department?” said Dr. Blackledge. “What does it mean for us as a hospital? Because many patients receive vaccinations and other services [from them]. If those services are no longer available or reduced, then we have a higher level of need to provide care for the community because of the inability to get care in some places.”
