After President Donald Trump signed the One Big Beautiful Bill Act July 4, health systems are calculating the potential effects of the new law and preparing new strategies accordingly.
The legislation includes a variety of provisions aimed at improving efficiencies and reducing fraud. Among the most scrutinized aspects is its changes to Medicaid; the bill adds work requirements, more frequent redeterminations, and adds new limits on state-directed Medicaid managed care payments and oversight. The Congressional Budget Office estimates 11.8 million people will likely lose Medicaid coverage as a result.
But that’s not the only part of the bill keeping health system CEOs awake at night. It also restricts ACA premium tax credit eligibility and phases out enhanced federal medical assistance percentage incentives connected to provider taxes.
What does this mean for health system executives and how are they planning for the future? One day at a time.
The “polycrisis”
Health system size, geography, patient population and financial stability will influence how impactful the new law will be. Renton, Wash.-based Providence, a 51-hospital system sprawling multiple states, estimates the bill will have an up to $500 million annual impact on the system. The system is also analyzing specifics of the bill to prepare for “material reductions in reimbursement,” said Erik Wexler, president and CEO.
“The passage of H.R. 1 by Congress poses a significant threat to the health and well-being of our communities, placing essential health programs and services at risk while stripping access to health care for millions of Americans,” Mr. Wexler said. “Eliminating nearly $1 trillion from Medicaid and the ACA marketplace funding over the next decade will impact every American. These sweeping reductions will limit health services; lead to care delays and longer wait times, especially in emergency departments; and place undue strain on overburdened healthcare providers.”
Providence, like many health systems, is already feeling significant pressure from external forces including state wage laws, staffing shortages, tariffs, inflation and commercial payer delayed payments and denials. Mr. Wexler calls it a “polycrisis” as the issues keep piling up.
“We will not be able to completely mitigate the access to care impacts, nor will healthcare across the U.S.,” said Mr. Wexler. “Preparations for the possibility of this legislation have been underway since January and have already painfully reduced our staff by over 600 people, have begun to reduce programs and services where required, and are increasing pressure on the commercial payers to meet contractual obligations.”
Smaller systems and rural healthcare organizations are feeling a similar pinch. David Dunkle, MD, president and CEO of Franklin, Ind.-based Johnson Memorial Health, said the bill’s passage is further pressuring hospitals and systems to “control expenses, increase efficiencies and maximize profitable service line performance.”
“The passage of the One Big, Beautiful Bill — when added to present concerns such as wage inflation, increased supply costs, labor shortages, and an ever-increasing number of commercial payor denials — will be the final straw that results in more hospitals shutting their doors in the coming months,” he said.
Tom Vasko, CEO of Newman Memorial Hospital in Shattuck, Okla., said the bill will further challenge his 25-bed critical access hospital. The bill eliminates the directed payment program, which helps keep hospitals open in the state, where 97 hospitals have negative operating margins. The cuts may mean hospitals cut services including maternity care and cancer services, as well as increased costs.
“Newman, as a critical access hospital, every Medicare patient we treat we lose money on. We will now be able to say the same for Medicaid,” said Mr. Vasko. “In other words, our congressional policy for our most critical hospitals is you must lose money on all federal and state covered patients.”
Mr. Vasko took the helm three years ago and knew he needed to make big changes; he decided to take a “for profit approach with a nonprofit mindset.”
“This novel approach would position the organization for resistance, strain and ward off closure,” said Mr. Vasko. “Given the circumstances, we will become more aggressive with a sense of urgency, accuracy and competitiveness. Newman will continue to be progressive. We must continue to gain top line revenue creating an opportunity for higher levels of cash flow to remain liquid.”
The hospital is also leaning into its analytics and AI partner Benzait, a boutique tech firm, and primary care providers to identify patients who need a higher level of specialty care.
“In the last four months, Newman has created a model of partnership and forged deep provider relationships to gain a strong referral base and ancillary revenue,” said Mr. Vasko. “We’ve added the opportunity to gain an uptick of 24,000 patient visits annually. We’ve launched two additional primary care clinics and a specialty clinic in contiguous counties to capture the patient base and legitimize our presence and geographic footprint. Investment in brand and creating an omnichannel of advertising to enhance patient recruitment.”
Medicaid cuts
The Medicaid cuts add to financial strain for already cash-strapped hospitals and systems, particularly for rural health systems responsible for a high percentage of patients with government payers.
“In the short term, I expect the amount of charity care that we provide to increase significantly as individuals lose their Medicaid eligibility,” said Dr. Dunkle. “In the long term, I worry about how the reduction in state-directed payments will affect Medicaid reimbursement, which already fails to cover the cost of providing care to the covered individuals.”
David Lubarsky, MD, president and CEO of WMCHealth in Valhalla, N.Y., expects big ramifications from the Medicaid cuts, particularly for children. Children who depend on Supplemental Nutrition Assistance Program benefits or rely on their parents to navigate the new work requirements will be adversely affected.
“These ‘cuts’ to Medicaid will not save money for our society at large,” Dr. Lubarsky said. “We are the safety-net system across 6,200 square miles of the Hudson Valley. The disenrolled will end up at the doors of safety-net hospitals’ ED, where we are legally — and morally — obligated to provide care. However, now those thrown off Medicaid due to this bill will be seen when their diseases reach a stage requiring expensive urgent care and whose human suffering will be magnified due to more advanced disease left untreated.”
Medicaid expansion, he said, has been a financial boon to society because it supports healthier individuals who need less emergency care, and allows people to work lower-paying jobs while still receiving coverage.
“Rolling Medicaid back in this manner is self-injurious to America,” he said. “As to the proposed cuts to hospital funding sources, we all currently survive with a 1% to 2% margin, on average, each year. Which systems will be able to absorb this reduced reimbursement (more uninsured, fewer [managed care organisation] tax-related subsidies to Medicaid rates) and remain solvent is hard to know.”
New York stands to lose $7 billion to $8 billion in federal support for safety net care. As the only level 1 trauma center, adult and pediatric burn center, organ transplantation center and regional Level 4 NICU and pediatric hospital between New York City and Albany, Dr. Lubarsky predicts all patients will feel the impact.
“Reducing federal support for New York state and for the hospital directly due to increased uninsured patients will hurt our ability to meet our mission on behalf of the rich and poor alike, without distinction,” he said.
What happens next?
EJ Kuiper, president and CEO of Baton Rouge, La.-based Franciscan Missionaries of Our Lady Health System, told Becker’s the provisions cutting state directed pay programs by 10% annually and provider taxes by 0.5% in 2028 and 2030 will have the biggest impact on many hospitals. Louisiana and Mississippi will see a $5 billion and $700 million negative impact from the legislation.
Despite significant challenges, Mr. Kuiper is looking on the bright side.
“Because we are one of the preeminent healthcare providers in the Gulf South, a substantial portion of those cuts will impact us. We are thankful to Speaker Mike Johnson and Majority Leader Steve Scalise for their support in delaying those cuts by several years,” Mr. Kuiper says. “While the language remaining in the bill is disappointing, the negotiated delays give us time to mitigate or further delay and perhaps eliminate the contemplated cuts.”
FMOL has a strong balance sheet and profit/loss, an advantage over other organizations navigating the new reality. The health system “remains very committed to meeting the needs of all the patients in the many communities [they] serve.”
Mary Mannix, president and CEO of Augusta Health in Fisherville, Va., is working on a five-year pro forma with her team to fully understand the law’s impact over the next decade. The health system expects “significant degradation” of its financial strength because revenue is dropping, uncompensated care will likely increase, and 340B status loss.
“Something will have to give in terms of programs and services,” said Ms. Mannix. “We have the gift of time to be discerning in this endeavor as well, working under the guidance of our community-based board. And, at the same time, we are committed to building out key specific services for the communities we serve and our workforce. I think the next several years will feel a bit contradictory from an optics standpoint at times, but our goal will be to have the net effect of vibrancy for our community owned health system.”
Ms. Mannix said the system will continue to improve access and design more “consumer-dynamic touchpoints” for the community, as well as the workforce. She wants to build on the system’s innovation culture and support.
“I think the next several years will feel a bit contradictory from an optics standpoint at times, but our goal will be to have the net effect of vibrancy for our community owned health system,” said Ms. Mannix. “We know we have very hard work and tough decisions in front of us. But we have a lot of strengths going into these very stormy times that we intend to leverage.”
Building for the future
Russsell Cox, CEO of Louisville, Ky.-based Norton Healthcare, is also taking a pragmatic approach to the news. His focus is on providing quality healthcare services; but delivering those services could become more complex.
“As a not-for-profit organization, we already operate on thin margins, with any revenue invested in providing quality health care for the patients and families we serve,” said Mr. Cox. “Like other providers across the country, we will be impacted and it will require a multifaceted approach to addressing this change. We are reviewing all the nuances of this legislation to understand exactly how it will affect us so we can minimize as many impacts to the community as possible.”
He called on providers and payers to partner more closely for appropriate and timely reimbursement for quality services.
“Healthcare constantly changes, and we have had to adapt in many ways over the years,” said Mr. Cox. “This will require even more innovation, but our mission calls us to provide quality health care to our community, and that is what we will continue to do.”
Not all CEOs feel the same about the bill’s impact. Michael Gentry, CEO of Kettering (Ohio) Health, thinks the bill will “likely be a net positive,” although his team is still crunching the numbers.
“There are many factors related to how federal matching funds from Medicaid are obtained, the baseline that a state had of matching funds when the legislation was finalized, the use (or not) of supplemental directed payments and local taxing districts,” Mr. Gentry said. “And, of course – base Medicare, which varies considerably around the country. But an early call here is net positive – primary credit to Ohio’s governor, who worked with the hospitals and challenged us to improve rural care, chronic disease management and lower infant mortality – and funded those initiatives.”
Kettering has a head start on developing a guaranteed 24-hour access for five key specialties by the end of the summer by using more digital technologies and advanced practice providers.
“We are building out clear diagnostic pathways based on primary care findings that create the need for a consult, so the specialists can act when the patient is seen – much of this work has been done by several integrated health systems in the U.S. and we are catching up here,” said Mr. Gentry.
