How providers can weather Medicaid cuts when many won't

What providers will feel the most impact?

The impacts of federal health policy changes will vary widely across hospitals, according to the RWJF-Urban Institute report. It will really depend on state policy environments, including whether a state has expanded Medicaid and whether it uses state-directed payments to bolster Medicaid reimbursement to providers. Payer mix, financial status and location also come into play here, researchers said.

However, they stressed that rural and Medicaid-dependent hospitals face the greatest financial risk from the policy changes. These provider types are the most likely to reduce service lines or close altogether.

Hospitals with a heavy Medicaid-covered patient population will see more pronounced shifts in uncompensated care costs as 4.9 million to 10.1 million people lose Medicaid coverage by 2028 due to new work requirements and more frequent eligibility checks. This includes many beneficiaries who satisfy the work requirements but will have trouble documenting their work activity, researchers say.

These hospitals, also known as safety-net providers, are expected to see operating margins drop between 25.9% and 29.6% due to coverage losses from the Medicaid work requirements, the Commonwealth Fund previously reported.

But rural providers are likely to be the most stressed since they were the most financially fragile to start with, Hempstead explained. Rural providers in Medicaid expansion states are particularly at risk, the report found.

Rural hospitals already operate on razor-thin margins and typically at a loss relative to patient care margins. Additionally, there have been nearly 200 rural hospital closures and conversions to outpatient-only care since 2005, according to the Cecil G. Sheps Center for Health Services Research. More than 700 rural hospitals are currently at risk of closing.

The OBBBA established a $50 billion fund specifically to support rural healthcare during these changes. However, industry experts agree that the funding won't be enough to keep rural providers afloat amid revenue losses over the next decade.

For rural safety-net hospitals in expansion states, the Commonwealth Fund estimates work requirements to reduce net operating income by 24.6% to 28.0%, further eroding the financial status of these already struggling facilities.

Rural communities are likely to face the most significant access barriers due to federal policy changes, Hempstead explained.

"A response to financial strain is to cut specialties that are more expensive and less profitable," she said. "For example, there have been a lot of rural hospitals that have already eliminated cancer care, which requires some residents to travel really far distances to get infusions."

Labor and delivery, behavioral health and outpatient services have also been trimmed at many cash-strapped facilities. This has created maternity care deserts, as birthing services incur high fixed costs and rely heavily on lower-margin public coverage. Hospitals have also sought to offload non-surgical, lower-reimbursement programs.

This is creating an impending access-to-care problem, which could escalate into a full-blown crisis if rural hospitals are forced to close entirely due to changes in payer mix and revenue.

Remaining calm under pressure

The health policy landscape under the Trump administration will affect all types of providers to some extent. But some aim to remain calm under pressure. One of those providers is Chris Johnson, founder and CEO of Bluebird Kids Health.

Bluebird Kids Health is a pediatric primary care provider with clinics in underserved areas, or pediatric care deserts, primarily in Florida. As such, about 60% of its patients are covered by Medicaid, according to Johnson. However, Johnson noted that children were largely held harmless in the legislation passed last summer.

The cuts primarily affected the adult population, with children's coverage continuing to receive broad bipartisan support. The impact on children is expected to be minimal, with only thousands of children affected across all states rather than millions, he said.

Florida is also a nonexpansion state, meaning it will not be as impacted by funding mechanism changes.

While direct regulatory impact should be relatively small, Johnson still expressed concerns about family caregiver confusion during redetermination processes. Some caregivers who lose Medicaid eligibility may not understand that their children still qualify. Additionally, there may be anxiety among certain populations, particularly related to immigration dynamics, about registering for Medicaid. The full impact of these factors on children remains unknown.

Bluebird Kids Health has established relationships with health plans to share data and help patients with enrollment processes. While they cannot directly enroll patients in Medicaid due to regulatory restrictions, they provide instructions and tools for enrollment.

Third Space is another practice that primarily works with Medicaid patients -- 80% to 85% of its overall patient volume, to be more exact, said the virtual behavioral health practice's cofounder and CEO Abhi Ghavalkar.

Shifting coverage isn't new to Ghavalkar, though.

Enrollment churn is already very common in Medicaid, with about 1 in 10 enrollees losing and regaining coverage within 12 months prior to the OBBBA's changes. Medicaid insurers have also consolidated significantly over the last two decades, with approximately one in four Medicaid managed care plans involved in at least one acquisition between 2006 and 2020, according to a 2025 Health Affairs study.

Third Space has navigated this before with minimal disruption to patient and provider relationships, Ghavalkar stated. The practice has completed eligibility checks more frequently to verify patients' coverage throughout the revenue cycle. These checks are also automated using technology from Assured to get as close to real time as possible.

The technology also scours payers' websites to catch changes in provider networks and payment policies. The practice itself has dedicated resources to get information at the plan level to anticipate disruptions in contracts and credentialing, too.

"Patients changing insurance has been a thing in the past. It's something that will continue to happen as long as insurance is a thing," Ghavalkar said. "What's possible is that the number of moments where a patient's insurance coverage could lapse doubles now. We've not seen any of that happen just yet, but we're preparing and putting in processes as if it's already 2027 to get ahead of them."

'Necessity is the mother of invention'

The upcoming federal policy changes aren't necessarily a death knell for healthcare, though some hospitals and practices may have to shutter their doors. But he researchers at RWJF and the Urban Institute say this could spur innovation, as organizations face pressure from upcoming federal policy changes.

"Necessity is the mother of invention," Hempstead said. "When there are big constraints, it does motivate everyone in an industry to try to find ways to do things more cheaply."

Providers have time to plan, adapt and implement mitigation strategies, including new approaches to care delivery and the use of artificial intelligence, according to the report.

Practices like Third Space are already building technical infrastructure to better leverage automation and AI for provider enrollment and credentialing, while Bluebird Kids is all in on a tech-enabled value-based care to deliver affordable, high-quality medicine regardless of a patient's health plan.

Both aim to minimize disruptions amid a shifting policy landscape while reducing the cost of care.

That latter is especially important for the $5.7 trillion healthcare industry and growing, which has made it a target for lawmakers' reform. Hempstead noted that, in addition to OBBBA changes, providers will also have to face federal rate cuts, expansion of site-neutral payment policies and reform to the 340B Drug Pricing Program.

"There are quite a few financial headwinds coming for hospitals," she said.

This could be where health AI shines. The technology is especially helping revenue cycles on the front end by running frequent eligibility checks to catch coverage churn early and automating insurance discovery to find alternative coverage.

But patient education will also be critical to navigating these changes. New data from KFF found that 80% of adults are unfamiliar with new Medicaid work requirements. This could lead to large-scale coverage losses without proper education. It'll be a matter of finding ways to connect and engage patients to help them navigate the new requirements and understand their cost-sharing responsibilities.

"There's going to be a way for most hospitals to come through this," Hempstead said. "But it's not going to be without challenges."

Jacqueline LaPointe is an Executive Editor at Xtelligent Healthcare Media, covering revenue cycle management, healthcare payers, health policy and health IT since 2016.