Becker's Hospital Review

8 CFO / FINANCE 'We cannot cut our way to success': Hospitals prep for Medicaid crunch By Alan Condon e deadline is not here yet, but the bill is already coming due. HR 1's most consequential Medicaid changes, work requirements for able-bodied recipients and tighter rules on state financing mechanisms, do not fully take effect until 2027. But hospitals are not waiting to feel the impact. Bad debt and charity care jumped 8% year over year in January, according to Kaufman Hall data. Sixty-six percent of healthcare finance leaders named Medicaid cuts their top concern in Strata's latest survey, ahead of labor costs, payer negotiations and everything else. "Hospitals are already underpaid for the care they provide, and payment cuts through the federal reconciliation process haven't even been implemented yet. Our hospitals are still only reimbursed 71 cents on the dollar, and less than half have the operating margins necessary for long-term stability," Nicole Stallings, president and CEO of the Hospital and Healthsystem Association of Pennsylvania, told Becker's. "Hospitals have plans for every scenario, ranging from service reductions to reductions in force, to potential consolidation and even closure." For hospital and health system leaders, 2026 has become the preparation year. e question is what preparation actually looks like when the math is already broken. e numbers behind the pressure e scope of what's coming is significant. HR 1 cuts nearly $1 trillion from Medicaid, with the Rural Health Transformation Fund providing $50 billion back, a figure rural hospital leaders have characterized as just a drop in the ocean of what rural hospitals need to ensure financial sustainability. "We cut $1 trillion … and we get a token thrown back at us at $50 billion," Jeremiah Hodshire, president and CEO of Hillsdale Hospital, a 110-bed facility in Hillsdale, Mich., said during an April 14 panel at Becker's Annual Meeting. Safety-net hospitals face an up to 30% hit to operating margins under the new work requirements, according to a September 2025 Commonwealth Fund analysis. Hospitals in Medicaid expansion states could see margins shrink by up to 13.3% on average, with rural hospitals facing even steeper declines in some scenarios. e Georgia example is a cautionary tale for what other states can expect. When the state launched its own Medicaid work requirement in 2023, a Government Accountability Office report found the requirement led to coverage losses without increasing employment. Many beneficiaries were disenrolled because of difficulties navigating the reporting system. Georgia spent twice as much on administration as it did on enrollee care. Kaufman Hall has been blunt about what this means for hospitals nationally: Prepare now or pay later. e firm warns of a return to pre- ACA dynamics in which millions cycle in and out of coverage, leaving hospitals to manage more last-minute denials, self-pay patients and inconsistent state-by-state requirements. On May 1, Nebraska became the first state to launch Medicaid work requirements under HR 1, setting the stage as other states prepare to follow suit by 2027. What hospitals are doing For large for-profit systems, preparation has focused on modeling the financial exposure from pending state-directed payment programs and tracking Medicaid supplemental payments through CMS. King of Prussia, Pa.-based Universal Health Services CFO Steve Filton estimates the system's aggregate net benefit from Medicaid supplemental programs will be cut on an "annually increasing and relatively pro rata basis" by $420 million to $470 million by 2032 under HR 1. He also noted UHS is tracking two pending programs, one in Florida worth roughly $47 million annually and one in Nevada estimated at $30 million, both awaiting CMS approval. HCA Healthcare is monitoring similar pending approvals in Florida, Georgia and Virginia, but CFO Mike Marks said the company would not size those potential benefits until they receive formal approval. For safety-net and community hospitals, the math is more direct and more urgent. Systems are preparing to absorb a spike in uninsured patients through a combination of community partnerships, financial assistance program updates and eligibility outreach. Cleveland-based MetroHealth System launched a communitywide insurance enrollment push aer its charity care costs more than doubled since 2022, reaching $1 million per day. President and CEO Christine Alexander-Rager, MD, called the trajectory "unsustainable." e system is partnering with local organizations, faith groups and neighborhood associations to help uninsured residents enroll in Medicare, Medicaid and ACA marketplace plans, while simultaneously updating its financial assistance policy. Kaufman Hall recommends a similar playbook for hospitals broadly: Update financial assistance policies, shore up eligibility verification processes, partner with community organizations for work-requirement tracking and align board-level strategy around the coverage disruption ahead. Rural hospitals: a different level of exposure For rural hospitals, preparation looks less like financial hedging and more like triage. e impacts of federal funding cuts hit these facilities differently than large systems, with fewer levers to pull and less margin to absorb losses. Mr. Hodshire said 734 rural hospitals are at risk of closing, with half facing immediate closure, per the Center for Healthcare Quality and Payment Reform's most recent analysis. Nine of those are in Michigan. At Hillsdale Hospital, the impact of HR 1 is already specific: a $6 million annual cut taking effect Oct. 1, 2027. With 72% of the hospital's payer mix in Medicare and Medicaid, there is little room to negotiate elsewhere. "I don't negotiate with Medicaid and Medicare. ey give me what they give me," Mr. Hodshire said. "Without a margin there is no mission." In Indiana, the situation is more acute. Mike Schroyer, MSN, RN, president of Baptist Health Floyd in New Albany, Ind., said the state's

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