Historically, hospitals and health systems have rarely pointed to federal policy shifts as a factor in decisions around closures, layoffs or service reductions.
That is starting to shift, with healthcare leaders increasingly linking difficult business decisions to federal funding cuts. The term encompasses several key pressures, from sweeping Medicaid reductions under the One Big Beautiful Bill Act, to the expiration of ACA subsidies and looming 340B drug pricing changes.
Here are five federal policy shifts that hospitals and health systems have cited as reshaping the economic landscape:
1. One Big Beautiful Bill Act’s Medicaid Reductions
Hospital and health system leaders across the country are already bracing for the financial impact of the One Big Beautiful Bill Act that President Donald Trump signed into law on July 4, anticipating reductions and closures at their organizations. The legislation includes more than $911 billion in Medicaid spending reductions over 10 years, achieved through work requirements, added administrative hurdles and limits on state funding mechanisms, with the effects on hospitals and health systems varying by state.
Oregon could see a $490 million federal Medicaid funding loss between 2025 and 2027, with potential reductions growing to $4.3 billion by 2029 and almost $7 billion by 2031, according to an Aug. 11 report from Oregon’s department of administrative services. Illinois is also among the hardest hit nationally under the OBBBA. The state faces cuts of nearly 20%, according to a KFF report. A July 8 press release from Illinois Gov. JB Pritzker estimated 330,000 Illinois residents could lose Medicaid coverage.
Hospitals are bracing for rising bad debt and charity care as patients lose Medicaid coverage, pressuring cash flow and stretching their capacity to care for uninsured patients. With many Medicaid reforms delayed until late 2026, the deepest financial impact is expected in 2027 — but drastic measures to cut spending are already underway as hospitals prepare for what lies ahead. In recent weeks, hospitals in Oregon and Illinois linked their service reductions, workforce cuts or capital spending pauses to the OBBBA in developments that will likely be a broader, multistate trend.
In Illinois, Freeport-based FHN backed out of a joint plan in late September with Beloit (Wis.) Health System to build a 10-bed microhospital in Roscoe, Ill. The health system pointed to financial challenges and expected reimbursement cuts from the OBBBA.
In Oregon, John Day-based Blue Mountain Hospital District laid off nine employees, five mid-level leadership positions and four clinical employees in mid-September. The hospital cited financial challenges and potential Medicaid cuts tied to the OBBBA, which “may result in lower operating revenues for the district,” Misty Robertson, CEO of Blue Mountain Hospital District, said in a Sept. 16 news release.
2. Expiration of Enhanced ACA Subsidies
With ACA enhanced premium subsidies set to expire at the end of the year, millions could lose affordable coverage, leaving hospitals to shoulder a larger burden of uncompensated care.
Enhanced ACA premium tax credits have contributed to high marketplace enrollment since 2021. Insurers and hospitals alike have advocated for maintaining the credits as they are concerned about steep premiums in the fallout. Insurers already requested the highest ACA rate increases this year since 2018. Insurers increased premiums an additional 4% over what they would have had subsidies been renewed, according to KFF analysis of rate filings.
Lawmakers on both sides of the aisle have expressed concerns, with some House Republicans backing the Bipartisan Premium Tax Credit Extension Act and Democratic governors speaking out. But a seven-week stopgap funding bill brought by House Republicans excluded these subsidies.
To support the extension, the Congressional Budget Office said the subsidies would cost $350 billion. However, the extension would also boost the insured population by 3.8 million.
If these credits are not renewed, the Urban Institute predicts some states will see stark spikes in their unenrolled population. Mississippi would be the hardest hit, with 99% of ACA enrollees currently receiving enhanced tax credits. There could be a 21% increase in the country’s uninsured population overall relative to if the policy was extended.
The president of St. Louis-based Ascension said over 24 million Americans could see their health insurance premiums increase by 93% on average. Jacquelyn Bombard, associate vice president and chief federal affairs officer for Renton, Wash.-based health system Providence, worries about the effects on rural healthcare.
“It will lead to delays and longer wait times, especially in our emergency departments,” Ms. Bombard said. “And we already have an overburdened health system: Physicians and nurses are burnt out, and we have a workforce shortage in many areas, especially in our remote and rural locations. So, this will impact everyone.”
3. Medicare Advantage Pressures
Medicare Advantage now covers more than half of the nation’s older adults, but its rapid expansion has brought mounting tensions with hospitals and health systems. In recent years, an increasing number of providers have opted to end or not renew contracts with certain MA insurers, citing excessive prior authorization hurdles, slow reimbursement timelines and rising administrative burdens.
Hospital leaders say these issues have moved beyond inconvenience and are now threatening financial stability. Some hospitals saw the headwind sooner than others. In 2024, Bristol (Conn.) Health eliminated 60 positions to save $6 million after struggling to secure reimbursement from MA plans. With nearly two-thirds of its older patients covered under MA, CEO Kurt Barwis said insurers are denying claims more often and delaying payments for those approved.
Landmark Hospital of Cape Girardeau (Mo.), a long-term acute care hospital, said in September it will close after nearly two decades of operation. The hospital, already in Chapter 11 bankruptcy, pointed to reduced referrals, the reinstatement of stricter Medicare admission criteria post-pandemic, and the aggressive growth of MA plans with narrower coverage rules.
Despite these examples, the broader evidence on MA’s financial impact is more complicated. A study published in the American Journal of Managed Care in 2023 found that rising MA enrollment in rural areas did not correlate with more hospital closures. Similarly, a 2025 report from MedPAC found no statistically significant effect of MA enrollment growth on hospital margins, revenues, or costs after analyzing a decade of hospital cost reports. Even critical access hospitals showed no measurable financial impact tied to MA penetration rates.
Still, MA remains at the center of many hospital-payer conflicts. The AHA recently cited a 55.7% increase in MA claim denials from 2022 to 2023 and warned of “skyrocketing” administrative costs tied to the program.
Between 2024 and 2025, total MA enrollment rose 4%, down from 7% growth the year before. Today, 34 million Medicare beneficiaries, or 54% of the eligible population, are enrolled in MA, up from 33 million (53%) in 2024. Next year is widely expected to be an even more disruptive period for the MA market as rising utilization, specialty drug costs and shifting market dynamics place more pressure on insurers and enrollees.
4. 340B Drug Pricing Program Changes
Hospitals have long relied on savings generated from the 340B drug pricing program to offset the cost of care for low-income and uninsured patients. But recent shifts from drugmakers and HHS are putting that financial lifeline under new pressure.
In July, CMS proposed accelerating a clawback of $7.8 billion in outpatient drug payments tied to reimbursement cuts imposed on 340B hospitals between 2018 and 2022. After the Supreme Court ruled in 2022 that those cuts were unlawful and hospitals were repaid, CMS moved to offset the cost of those repayments by reducing future payments for non-drug items and services.
Initially, the agency had set a 0.5% annual reduction in outpatient payments to spread the offset over nearly two decades. The new proposal would raise that cut to 2% a year, allowing CMS to recoup the full $7.8 billion by 2031 instead of 2041. Hospitals and health systems are urging CMS to abandon the proposal, warning it will exacerbate financial pressures.
In comments submitted to CMS regarding the proposal, Grand Rapids and Southfield, Mich.-based Corewell Health said it has “already lost tens of millions of dollars due to CMS’ error.”
“CMS would create undue and unnecessary further disruptions to hospital operations with this accelerated clawback proposal,” Corewell wrote in its comment.
Numerous health systems told the agency they based multiyear budget plans around the initial 0.5% reduction, and that an acceleration would disrupt cash flow.
Meanwhile, HHS is planning to implement a controversial 340B pilot program that would replace the current upfront discount structure with post-sale rebates. The pilot, which would give drugmakers the option to provide discounts for drugs purchased through the program via post-sale rebates, is set to launch Jan. 1, 2026.
Hospital groups and lawmakers are urging HHS to press pause on the pilot. The model would raise costs for safety-net hospitals already navigating severe financial strain, industry groups warn. A group of 162 bipartisan lawmakers has also raised concerns over added financial strain on hospitals and a rapid implementation timeline.
5. National Institutes of Health Research Funding Cuts
Medical schools, teaching hospitals and other research institutions are bracing for sweeping changes to reimbursements for indirect costs that support research projects.
In February, the NIH said it plans to cap the amount of funding research institutions receive for indirect costs — which help cover laboratory space, equipment and other overhead expenses — at 15%. In past years, the average rate was between 27% and 28%.
Research institutions have said the policy would significantly hinder research activity, limit access to clinical trials and stall scientific progress on groundbreaking treatments. In April, a federal judge in Massachusetts issued a permanent injunction to block the cap from taking effect, which the Trump administration has appealed.
That proposal is one piece of a broader squeeze on the nation’s biomedical research infrastructure. Hundreds of millions of dollars in federal grants supporting cancer research projects alone have been cut under the Trump administration, according to a Sept. 14 report from The New York Times. In all, more than 2,100 NIH grants — worth roughly $12 billion — have been terminated since January. Many of the cuts are tied to a series of executive orders President Trump signed earlier this year targeting diversity, equity and inclusion programs.
The cuts have begun to ripple across the healthcare workforce. In June, Nashville, Tenn.-based Vanderbilt University Medical Center said it would lay off up to 650 employees and halt hiring for research positions. The academic system cited medical research cuts and anticipated Medicaid cuts in a broader plan to reduce its budget by $250 million.
In April, the University of California also pointed to executive orders that affect medical research and anticipated state cuts to its 2025-2026 budget when it announced a hiring freeze at San Francisco-based UCSF Health and Sacramento-based UC Davis Health.
