Presbyterian Healthcare Services’ decision to exit most Medicare Advantage plans and eliminate 150 positions underscores a growing reality for provider-sponsored health plans.
KEY TAKEAWAYS
Rising utilization, reimbursement pressure and regulatory scrutiny are forcing organizations to reassess participation in Medicare Advantage.
Presbyterian’s move reflects a decision to prioritize care delivery and long-term financial stability over maintaining an unprofitable business line.
Financial flexibility and access to capital increasingly depend on demonstrating disciplined balance-sheet management.
Albuquerque-based Presbyterian Healthcare Services has announced it will discontinue most of its Medicare Advantage (MA) offerings beginning in 2027, affecting roughly 30,000 members, while laying off approximately 150 health plan and administrative employees. The system will continue operating its Dual Plus Special Needs Plan serving Medicare-Medicaid beneficiaries. According to Presbyterian, remaining in the broader MA market would limit its ability to invest in care delivery, workforce development and access initiatives across New Mexico. The move is another indication that provider-sponsored health plans are facing mounting pressure as MA margins tighten nationwide.
Many health systems entered Medicare Advantage to create integrated delivery models, diversify revenue streams and capture greater value from population health initiatives. However, elevated medical utilization, changing reimbursement dynamics and increased regulatory oversight have altered the financial equation. Presbyterian’s decision suggests leadership determined that the returns no longer justified the capital and operational resources required to compete effectively in the market.
The regional implications are significant. Presbyterian is one of New Mexico’s largest healthcare organizations, operating hospitals, clinics, physician practices and a health plan across the state. While the layoffs are concentrated in health plan and administrative roles, the exit removes a major local MA option and will require thousands of seniors to seek alternative coverage. At the same time, Presbyterian argues the move will allow it to redirect resources toward direct patient care and workforce investments, potentially strengthening healthcare delivery capacity over the long term.
There’s a larger lesson centered on strategic focus. Organizations often face pressure to maintain market presence across multiple business lines, even when margins deteriorate. Presbyterian’s action demonstrates the importance of regularly evaluating whether each service line advances the system’s long-term mission and financial objectives. Exiting a business can be difficult, but preserving capital for higher-value investments may ultimately create greater organizational resilience.
The decision also highlights why credit ratings deserve ongoing executive attention. Strong ratings are not simply a borrowing metric; they influence an organization’s ability to finance facilities, technology modernization, workforce initiatives and strategic growth. Rating agencies increasingly scrutinize operating performance, liquidity, leverage, governance and management’s willingness to make difficult strategic decisions when market conditions change. Fitch continues to maintain coverage on Presbyterian Healthcare Services, underscoring the importance of external evaluation of health system financial strength.
Healthcare organizations that delay corrective action risk eroding margins, weakening liquidity and increasing borrowing costs. Conversely, systems that demonstrate disciplined portfolio management often preserve stronger credit profiles and maintain greater access to capital during periods of industry disruption.
Presbyterian’s Medicare Advantage could signal a move towards strategic capital allocation, a growing priority in today’s environment. As reimbursement uncertainty and utilization pressures continue across healthcare, CFOs should view the announcement as a reminder that financial sustainability sometimes requires difficult choices today to preserve organizational strength tomorrow.
Issue: The 2025 budget reconciliation law (the One Big Beautiful Bill Act, or H.R. 1) reduces federal funding for Medicaid, Affordable Care Act (ACA) marketplaces, and the Supplemental Nutrition Assistance Program (SNAP) by about $1.3 trillion but adds $50 billion for the new Rural Health Transformation Program (RHTP). Additionally, the ACA enhanced premium tax credits expired on January 1, 2026.
Goal: To estimate the impact of H.R. 1 and the expiration of enhanced premium tax credits on state economies and employment levels, and state and local tax revenues in 2026, the first year of implementation, and 2029, when the legislation is fully implemented.
Methods: We estimate federal funding changes for the RHTP, ACA marketplaces, Medicaid, and SNAP, and use the IMPLAN modeling system to project economic and employment impacts.
Key Findings and Conclusions: We project that in 2026, the RHTP’s modest economic gains will be overshadowed by losses from budgetary cutbacks. The predicted combined national impact is 229,000 job losses, primarily affecting larger and more urban states. By 2029, 1.65 million jobs could be lost nationally, a 1.0 percentage point increase in the unemployment rate. Every state would experience substantial economic and employment losses, driven primarily by large Medicaid cuts.
Introduction
The Rural Health Transformation Program (RHTP), which provides five years of federal funding to help states improve health care access and quality in rural areas, was created through the 2025 federal budget reconciliation law known as H.R. 1 or the One Big Beautiful Bill Act. The law also made sweeping cuts to Medicaid, Affordable Care Act (ACA) health insurance marketplaces, and the Supplemental Nutrition Assistance Program (SNAP).1 Although the net result is deep reductions in health and nutrition funding, the federal deficit will rise by over $3 trillion because of large tax cuts also included in the law.2 H.R. 1 is expected to cause more than 10 million Americans to lose their health insurance due to the ACA and Medicaid reductions, 3 million people to lose food assistance because of SNAP cutbacks, and a potential 51,000 preventable deaths due to Medicaid cuts.3 On January 1, 2026, months after H.R. 1 was signed into law, enhanced premium tax credits for the ACA marketplaces expired, causing ACA premiums to rise steeply and leading to rapid coverage losses.
This brief estimates the economic impacts of these sweeping changes to the health care landscape. Using the IMPLAN economic modeling system, we examine the combined effects of H.R. 1 and the expiration of the ACA tax credits on every state’s economy and employment in 2026, the first year of implementation, and 2029, when the law’s changes are fully implemented (see “How We Conducted This Study”). It builds on earlier briefs that have examined the potential economic effects of the U.S. House of Representatives version of the H.R. 1 legislation and the expiration of the ACA subsidies.4
Timeline and Scale of H.R. 1 Cuts and Expansions
The Congressional Budget Office (CBO) estimated that H.R. 1 will reduce federal Medicaid spending by more than $900 billion between the 2025 and 2034 fiscal years, while federal funding for the ACA marketplaces and SNAP will each be cut by almost $200 billion over the next decade. The RHTP adds $50 billion in funding over the decade.5 The expiration of ACA enhanced premium tax credits means federal funding is about $335 billion lower over a decade compared to if they were extended.6
H.R. 1 changes are phased in, as illustrated in cumulative dollar changes in Exhibit 1 and percentage changes in Exhibit 2. While the RHTP began on January 1, 2026, alongside the expiration of ACA tax credits, Medicaid and SNAP cuts will largely be implemented later. By 2034, cumulative federal Medicaid reductions will total $904 billion, exceeding cumulative reductions in ACA marketplace and SNAP outlays. However, although the dollar amounts lost from Medicaid are much greater, the ACA marketplace and SNAP cuts are deeper when measured as a percentage of their annual baseline expenditures. In 2029, for example, federal Medicaid funding will be cut by 12.7 percent, while ACA marketplace funding will fall by 23.4 percent and SNAP funding by 19.7 percent. Additional losses from the expiration of the ACA enhanced premium tax credits means the combined impacts on the ACA marketplaces are even larger than shown in the exhibit. Key policies changes are summarized in Exhibit 3.
Economic Consequences in 2026: Funding Losses Eclipse Modest Economic Gains
In 2026, we project the RHTP launch and the expiration of ACA tax credits — both beginning in January of this year — to have a largely net negative impact on state economies, jobs, and tax revenues.
Rural Health Transformation Program. Ten billion dollars in RHTP funds have been distributed across 50 states, ranging from $281 million and $272 million for Texas and Alaska to $147 million for New Jersey. State economies, as measured by their gross domestic product (GDP), will be $13.8 billion higher as a result (see Appendix 1). The number of new jobs across the country will likely rise by 110,100, of which 51,600 are health-related, and economic gains will contribute to $847 million in additional state and local tax revenues. Relative gains will be higher in smaller rural states.
ACA health insurance marketplace. In 2026, the expiration of the enhanced premium tax credits and other H.R. 1–related changes will see federal funding for the ACA marketplace fall by $31 billion. State GDPs will fall even more, by $40.7 billion (Appendix 2), while state and local tax revenues will fall by $2.5 billion. This will lead to the loss of 339,100 jobs, of which 154,200 are health-related. Southern states, which generally did not expand Medicaid eligibility, tend to be more reliant on the ACA marketplaces. For example, the ACA cuts will lead to 83,400 jobs lost in Texas and 57,500 in Florida, both nonexpansion states. In comparison, Medicaid expansion states California and Louisiana are expected to lose 20,300 and 7,000 jobs, respectively. Overall, the average expected job loss is approximately 2,800 in expansion states, compared with 22,300 in nonexpansion states.
One potential economic effect not captured in our analysis: those who continue to get coverage through the ACA marketplaces will have to pay hundreds or thousands of dollars more for coverage or shift to ACA plans with higher cost sharing, undermining their financial security and reducing spending power on other goods and services.7
Combined Economic Impacts in 2026
While the infusion of $10 billion into state economies for rural health contributes to some economic growth, it is overshadowed by the $31 billion in federal funding cuts to ACA marketplaces.
Exhibit 4 presents combined national estimates for 2026, including the states with the largest employment losses and the largest employment gains. States with the greatest losses — Georgia, Texas, Florida, South Carolina, Mississippi, Alabama, Tennessee, and Louisiana — are Southern states that rely more on the ACA marketplace. Georgia, Texas, and Florida lose between 30,700 and 79,500 jobs, equivalent to a 0.5 percent to 0.6 percent decline in the employment rate. States with job losses also have substantial reductions in their GDP and state and local tax revenues. States with the largest job increases — Alaska, Vermont, Wyoming, Montana, North Dakota, Rhode Island, Hawaii, and Maine — gain 900 to 2,000 jobs each, equivalent to a 0.3 percent to 0.6 percent increase in the employment rate. States with job gains also will have GDP gains and increased state and local tax revenues (Appendix 3 shows detail for all states in 2026).
Exhibit 5 presents the national map of states gaining and losing jobs. Our analysis indicates that 22 smaller and rural states will have net positive gains and job growth, while the District of Columbia and 28 states, generally larger and more urban, will have net federal funding losses and lose jobs in 2026. Many of the states losing jobs are Southern states that did not expand Medicaid.
Economic, Employment, and Tax Consequences in 2029: All States Will Lose
In 2029, when H.R. 1 provisions are fully implemented, we project that all states will lose federal funding and suffer substantial economic and employment losses.
Medicaid. In 2029, federal Medicaid funding will drop by $90.9 billion, causing state GDPs to fall by $118.5 billion (Appendix 4). Medicaid cuts also mean 996,000 fewer jobs nationwide in 2029, half of which will be health-related, including in hospitals, clinics, pharmacies, or nursing homes. States with the largest job losses include California, New York, Pennsylvania, Illinois, Texas, Arizona, Ohio, and Michigan, which lose between 150,200 and 36,600 jobs. States that expanded Medicaid eligibility under the ACA will likely face deeper losses because H.R. 1 targeted them with policies like Medicaid work requirements, restrictive enrollment procedures, and higher cost sharing only in expansion states. Individual and business income losses will cause state and local tax revenues to fall by $8.8 billion nationwide.
SNAP. Federal SNAP funding will be cut by $21.8 billion in 2029, causing state GDPs to decline by an estimated $18.3 billion (Appendix 5). The SNAP cutbacks will cause 135,500 jobs to be lost in 2029, of which about 75,000 are food-related jobs. Other research has examined SNAP’s importance in supporting revenues and jobs at grocery stores that feed all Americans.8 States with the greatest job losses due to the SNAP budget reductions include California, New York, Texas, Florida, Illinois, Pennsylvania, Michigan, Georgia, and North Carolina, which will lose between 23,000 and 4,200 jobs. Under H.R. 1, states with higher over- and underpayment error rates must pay 5 percent to 15 percent of SNAP benefit costs, leading to drastic reductions in federal payments. The expansion of SNAP work requirements and the halving of federal funding for administrative costs will likely make it harder for states to implement operational changes to lower their error rates.9 State and local tax revenues will decline by approximately $1.9 billion nationwide because of cuts to SNAP.
Combined Economic Impacts in 2029
Exhibit 6 summarizes key results for the combined economic impact of the RHTP and ACA marketplace, Medicaid, and SNAP funding changes. In 2029, RHTP is expected to continue providing $10 billion in federal funding to states, but it will be eclipsed by ACA marketplace losses amounting to over $57 billion. Federal funding for Medicaid will drop by almost $91 billion and SNAP funding by almost $22 billion. Combined, these cuts will total $160 billion (Appendix 6 presents more detail for all states.) Our IMPLAN analyses indicate that these changes will reduce state GDPs by $197 billion in 2029, about 23 percent more than the federal savings due to funding cuts being magnified by the “multiplier effect.”
Overall, there will be 1.65 million fewer jobs in 2029 — almost half of which will be in health care — roughly equivalent to a 1.0 percentage point reduction in the national employment rate. State and local tax revenues will be more than $14 billion lower in 2029.
To illustrate relative losses, Exhibit 6 shows job losses as a percentage of state employment in the eight hardest-hit states, all of which have expanded Medicaid eligibility. The exhibit also highlights states with the largest number, rather than percentage, of jobs lost, ranging from 207,100 in California to 51,000 in Ohio.
Over the next decade, funding cuts and changes to Medicaid, the Supplemental Nutrition Assistance Program, and Affordable Care Act marketplaces through H.R. 1, and the expiration of the ACA enhanced premium tax credits, have the potential to reshape the U.S. economy and health system. The $50 billion funding increase through the Rural Health Transformation Program will not offset the much larger losses in health insurance coverage, decreased access to care, and increased hunger caused by H.R. 1 cuts.
We focused on two years in this brief: 2026, the first year of the law’s implementation, and 2029, when the law’s changes are fully implemented. Economic and employment impacts across states will also occur in 2027 and 2028, though those interim years are not presented here. By 2029, federal funding cuts will total $160 billion, triggering 1.65 million job losses. Slightly less than half of the jobs lost would be in health care, the leading sector for job growth in recent years.10 Research suggests these cuts also could reduce the capacity of hospitals and community health centers to provide care.11 The RHTP might offset a small portion of these losses through 2030, but it will be eclipsed by larger losses, particularly in urban areas where most Americans live. The economic repercussions of jobs lost in other areas, including grocery stores and food-related industries, will likely ripple to sectors such as retail, real estate, and construction across the nation.
Under H.R. 1, cuts to health and nutrition programs largely harm Americans with lower incomes, while tax cuts primarily benefit those with higher incomes. The CBO estimates that Americans in with lowest 10 percent of incomes will lose about $1,200 per year (3.1% of their incomes), while those with the top 10 percent of incomes will gain $13,600 per year (2.7% of their incomes).12 Other analyses reached similar conclusions.13
This brief illuminates another aspect of the budget cuts: how they harm state economies. While the budget cuts create $160 billion in savings for the federal government in 2029, state economic losses will outstrip those savings: we project state GDPs will decline by $197 billion, or about 23 percent more than the federal savings.
Cuts to Medicaid and SNAP will directly shift costs from the federal government to states. However, H.R. 1 will also lower state and local tax revenues by around $14 billion in 2029, making it harder for states to offset lost funds. Federal funding and tax revenue losses will likely force states to make further cuts to assistance programs and other public services like education. Though not directly required by H.R. 1, states could be forced to scale back programs such as home and community-based services for disabled and elderly populations.14
Proponents of the law explained that the budget cuts were intended to exclude “undeserving” populations from accessing benefits, such as able-bodied people who choose to not work, claiming these changes would ultimately help them gain jobs and incomes.15 But evidence indicates that work requirement programs do little to increase employment because they fail to address underlying reasons for unemployment.16 Moreover, by reducing the number of jobs in low-income communities, the new law could make it even harder for people to find jobs.
How We Conducted This Study
Estimating State-Level Federal Funding Changes
An important element of this analysis is estimating changes in federal funding for each state, based on the many sections of the bill. We began by estimating state “baseline” federal benefit expenditures for each state, using state estimates of Medicaid expenditures for fiscal year 2025 and actual SNAP expenditures for fiscal year 2024. These were then inflated to 2029 levels, based on Congressional Budget Office baselines, using data and methods described previously.17 For the Affordable Care Act marketplace, we used data about state-level ACA premium tax credits in 2024 and inflated these to 2026 and 2029 levels.
To estimate the reductions in federal funding that would occur at state levels we relied on the following sources:
We used Centers for Medicare and Medicaid Services Rural Health Transformation Program federal allocations to the 50 states in 2026.18 The total level of federal funding ($10 billion) will be the same in 2027 to 2030, although state allocations may differ slightly in future years. We assume that all $10 billion allocated in 2026 is spent that year; if actual outlays are lower, then the economic gains in that year will be reduced.
For the ACA marketplace analyses, we relied on the Urban Institute’s estimates of the state-level effects of the expiration of the ACA subsidies, H.R. 1 policies, and the value of ACA subsidies.19
State-level Medicaid funding reductions were based on detailed analyses published by KFF of the final version of H.R. 1, which included estimates related to the effect of work requirements, changes in provider taxes and state-directed payments, and shortened certification periods.20
State-level Supplemental Nutrition Assistance Program funding reductions were based on a combination of estimates of the impact of expanded work requirements by the Urban Institute21 and SNAP payment error rates for 2024 (to predict state matching requirements).22 Adjustments were made to accommodate final compromises in the legislation, such as potential adjustments for states with very high error rates and for work requirements in noncontiguous states.
Finally, all these state-level estimates were aligned with the CBO’s estimates of changes in federal funding for each of these programs based on the enacted version of H.R. 1, adjusting for programmatic budget interactions.23
Despite our efforts to use the best estimates available, we recognize that all projections are uncertain and that actual impacts may differ due to changing economic circumstances or state policy actions. Nonetheless, the analyses in this brief should provide conservative estimates of the approximate impact on federal funding levels and economic and employment effects.
Estimating Economic, Employment, and Tax Impacts
Our estimates of the economic, employment, and tax effects of reduced federal funding are produced using IMPLAN, a widely used input-output economic impact software system.24 The underlying logic of our analyses is that funding changes have “multiplier effects” that are felt initially in the health care and food sectors but soon spread out to other economic and employment sectors as well.
IMPLAN enables us to estimate three key impacts for states, their businesses, and residents: 1) changes in state gross domestic products (GDPs) caused by the reduction in federal funding; 2) changes in the number of jobs in the state, which are categorized as direct (health or food), indirect (other sectors) and total employment; and 3) changes in state and local tax revenues caused by the changes in household and business incomes. The definitions of these metrics were described previously.25
For Medicaid, we partitioned each state’s Medicaid loss in four health care sectors: hospital, ambulatory care, pharmaceuticals, and long-term care, based on estimated Medicaid spending in these sectors.26 The analysis of ACA marketplace changes was similar, although it did not include the long-term care sector, which is not covered by ACA plans. Our IMPLAN-based analysis of the cuts in SNAP funding was similar but focused on changes in food-related expenditures. As described in an earlier brief, households must blend SNAP benefits and their own income to purchase enough food; research shows that SNAP induces a marginal propensity to purchase more food. Thus, we allocated each state’s share of SNAP reductions in two parts: a 30 percent reduction in food purchases and a 70 percent reduction in other consumer goods purchased by low-income households.
Data about the types of organizations that will receive RHTP funding within states is not yet known, although CMS issued some guidelines for states, such as no more than 10 percent allocated for administration.27 Using the IMPLAN industry categories, we allocated each state’s allocation into funding for state health departments, hospitals, and ambulatory health clinics. In many cases, allocations may initially go to nonprofit organizations or businesses to help with health care staffing or health information technology; in the end we expect that the funds will ultimately be received by health care organizations.
All these analyses use IMPLAN’s Multi-Region Input-Output (MRIO) methodology to account for cross-state effects of the policies (sometimes called “leakages”).28 For example, some of the food purchased in Georgia may have been grown in Kansas or processed in Tennessee, so lower grocery purchases in one state may trigger losses in other states. For example, a nurse who loses her job in a Louisiana clinic might reside in Texas; thus, a job lost in one state could create economic losses in another.
How the Multiplier Effect Works
The figure below illustrates how the multiplier effect works for Medicaid and SNAP. For Medicaid, the reduction in federal Medicaid funds lead to reductions in state Medicaid programs’ budgets. In turn, the loss of insurance coverage lowers revenue to health care providers, like hospitals, clinics, pharmacies, and nursing homes. These are the direct effects.
In turn, health care providers must compensate for revenue losses by reducing how much they spend on staff and on goods and services from vendors (such as medical supplies, equipment, rent, and IT services). These businesses also must reduce spending on labor, goods, and services; the reductions in labor expenses means health providers and other businesses must lay off staff and reduce compensation. These are the indirect impacts of the policy change.
Finally, as employees lose income, they purchase fewer consumer goods and services (such as retail goods, transportation, groceries or rent). These are known as induced losses, which in turn lead to economic and employment losses. Falling personal and business income also lowers state and local revenue from income, sales, and other taxes, such as real estate taxes.
These principles also apply to the loss of federal SNAP funding. Although SNAP is administered by state agencies and benefits are distributed to recipients, the SNAP funds flow directly to grocery stores for food purchases, although as described above, economists recognize that consumers redeploy their available household income to purchase other goods and services. Parallel to the Medicaid example, these effects can be viewed as direct, indirect, and induced effects.
We focus on the effects of changes in federal funding because they are exogenous changes (“shocks”) in the resources available to each state and its residents caused solely by the federal policy changes. States, businesses, or individuals may compensate for the reduction in federal funding by shifting resources away from other uses (for example, cutting services or raising taxes) which have similar economic repercussions. Focusing on the federal budgetary changes makes our estimates more conservative. Also, some economic multiplier studies report the effects on a broader measure of economic activity, sometimes called output, which may double-count losses in production, wholesale, and retail sectors. We present estimates of changes in state GDPs, based on the value added (or lost) within a state; these are much more conservative and consistent with standard approaches for measuring state economies.
Medicaid, ACA, and SNAP cutbacks could have other harmful effects on health, nutrition, and well-being. A large body of research has demonstrated how the expansion of Medicaid coverage under the ACA led to improved health access, better health, and greater financial and mental well-being.29 SNAP has also been associated with better health and lower financial strain.30 For example, one report estimated H.R. 1 could cause medical debt to rise by as much as $50 billion,31 while another estimated 51,000 preventable deaths.32 The loss of health and nutrition benefits could impair health or mental well-being, leading to additional losses in productivity or higher health care costs. Our analyses do not account for these other health and social costs; they are based entirely on the economic repercussions of federal funding reductions on state economies and employment.
Summer is here and its first week is in the books. Like politics, the economy and life in general, it brought the good, bad and ugly attention to healthcare in the U.S.
The good:
At the American Society of Clinical Oncology (ASCO) meeting in Chicago, attendees heard about a breakthrough medication that dramatically improved results in pancreatic cancer patients (Revolution Medicine) and a gene editing tool capable of permanently lowering cholesterol (Lilly) with Chinese ascendence in the biotech science race a clear takeaway.
The American Hospital Association issued a statement accepting responsibility—in part—for healthcare affordability concerns mounting nationwide, calling for collaboration with insurers, drug companies and others to pursue solutions. In tandem, AHA released “Making Health Care More Affordable: A Blueprint to Lower Costs, Improve Access and Enhance Quality.” which recommends 5 core strategies and 24 actions to address affordability in a broader context of its systemic reform.
And the Bureau of Labor’s May jobs report brought a surprise: the labor market rebounded in May adding 179,000 jobs prompting speculation new Fed Chair Kevin Warsh might consider interest rate hikes to slow inflation (a policy that would encounter disfavor in the White House as Campaign 2026 looms).
The bad:
The House Appropriations Committee mark-up of its FY27 budget Friday included a 4% cut to FY27 HHS’ funding—less than the 12.5% President Trump proposed in his proposed budget but no less sobering.
The S&P 500 (-2.64%) and Nasdaq (-4.18%) each had their worst single-day drops of the year yesterday after the stronger-than-expected jobs report (BLS May) triggered a market selloff.Stocks fell across a broad range of sectors. The Dow Jones Industrial Average fell more than 1%, and the S&P 500 fell more than 2%. The tech-heavy Nasdaq composite sank more than 4%.
And the ugly:
Last Monday, CMS issued its work requirement directive to the 40 Medicaid expansion states detailing two new requirements they must meet to verify enrollment that begins in January: 1-
States must use unspecified data that’s not more than a year old to make the eligibility determinations as much as possible.
Starting Jan. 1, 2028, states must provide documentation proving medical frailty i.e. proof people have conditions that impair their ability to meet the requirements.
And these new stipulations come on top of administrative filing requirements that start at the end of this month and mandated twice/year eligibility verification oversight starting next year.
Per the CBO, the intensified policing of the Marketplaces (a legacy of the Affordable Care Act) is likely to shrink enrollment by 25% or more—that’s the point. The administration holds a view that states are ineffective in managing health programs like Medicaid, CHIP, the Marketplaces et al. contributing to un-attended fraud, waste and abuse.
Neither of the new stipulations from CMS is clear nor was either anticipated. They were an ugly surprise and none of 40 states is prepared.
My take
The promising breakthroughs in diagnostics and therapeutics like last week’s are the reasons most individuals in the U.S.—legal residents or not—believe our health system seeks to do no harm and provides dependable high-quality care, state of the art care (especially if you have insurance). They acknowledge it’s complex and expensive, but they accept it’s what we have for now.
But the bad and ugly news about healthcare seems to dominate media coverage, especially in social media where fact-checking is often shortcut.
For me, the highlight of the week was AHA’s statement committing itself to the pursuit affordability across the system by marshalling its peers to create meaningful solutions. Sign me up. Collaboration is the starting point. Transparency in its deliberations will be necessary to building trust in this process. Inclusion of all proposed solutions subjected to objective review will be its necessary start. And timing is key: election season tends to distort messaging and draw critics. The urgency of direction is no less key: ideally, meaningful direction and substantive recommendations should follow soon after but be independent of Campaign 2026 results in state and federal elections.
Paul
PS I am in DC this weekend celebrating HFMA’s 80th Anniversary at National Harbor. Now living away after 15 years in the nation’s capital, visits like this are bittersweet. There’s no doubt healthcare’s impacted by the laws, rules, administrative actions, executive orders, SCOTUS decisions and appropriations that originate here, but I’ve come to appreciate three realities since leaving here years ago:
1-U.S. healthcare is decreasingly controlled by DC-originated actions and activities. The corrosive impact of partisan brinksmanship in our elective politics has eroded faith and confidence in its purpose and intent, especially in federal government.
2 Changes to the system are increasingly the result of states forced to cope with health & social services programs and private capital seeking shareholder gain. How these align (or not) will be keys to U.S. healthcare’s future. Today, there’s more dissonance than consonance in their directions.
3-Only a few are planning for healthcare’s long-term future. The agenda for most in this industry-including the majority attending HFMA this week- is short-term survival and sustainability. Long-range strategic planning and meaningful assessment of future state scenarios are luxuries for most. Clearly, issues like affordability did not surface overnight.
In the United States, laws that define how our health system operates have evolved over our 250-year history. They’re built on allopathic medical pedagogy borrowed from our European roots and evolve around clinical innovations and technologies that improve outcomes and extend life.
Historically, federal agencies oversaw its evolution: the Departments of Health and Human Services (providers, insurers, drugs) Justice (antitrust), Federal Trade Commission i(interstate commerce, marketing practices) were primary actors with Agriculture (food supply) and Interior (natural resources) playing support roles. And the federal court system adjudicates challenges. But that’s changing: states are playing a bigger role. State attorneys general and Supreme Courts are pulled in more frequently.
Since the Supreme Court’s 2022 ruling in Dobbs v. Jackson Women’s Health Organization that overturned Roe v. Wade, healthcare issues have become more prominent in state lawmaking. That decision essentially delegated abortion rights to states to handle. And, in HR1 (One Big Beautiful Bill Act 2025), Congress cut federal Medicaid funding by almost $900 billion over 10 years essentially forcing states to find different ways to manage it. Today, Medicaid is 30.7% of the average state’s expenditures with half sourced from state general funds. OB3 will add fiscal pressure to every state.
In Campaign 2026, healthcare referenda will appear alongside candidates match-ups on many state ballots. Candidates in the 36 Gubernatorial/Territorial races and every Congressional race face questions about how they’ll “fix” healthcare. The combination of the public’s discontent with Congress and its dissatisfaction with the health system will prompt states to address a widening range of healthcare issues of consequence to their citizens. For some issues, Governors will issue Executive Orders, for others, referenda will appear on voter ballots and in others, legislation will be approved by their legislatures. The list is long…
Expansion of price transparency (PT) requirements for hospitals, insurers and (likely) physician services: Increased stipulations to increase awareness and use of pricing tools beyond current regulations.
Limitations on private equity ownership: States may require disclosures of private equity investments and many will seek modification of carried interest, clinical autonomy and governance structures.
Scope of practice expansion: States are expanding clinical responsibilities for advanced practice nurses, pharmacists and others to enable access to primary and preventive health services.
Prior authorization and payment integrity: States will require insurers to adopt business practices that reduce enrollee and provider challenges, financial shortfalls and disputes. In tandem, states will expand payment integrity alignment with evidence-based practices that reduce unnecessary care.
Implementation of site neutral payment policies: Despite federal pushback, states will align with employers and insurers to expand site neutral payment policies opposed by hospitals.
Re-calculation of community benefits and limitations on tax exemptions: Large, NFP systems will face state and federal regulatory pressure to forego/limit tax exemptions.
Price controls on prescription drugs (above and beyond most favored nation stipulations): States will enact legislation creating Drug Price Control Commissions to limit drug price escalation. In some, importation and restrictive formulary strategies will be enacted/expanded.
State constraints on PBM and GPO activity: States will advance business practice restrictions on PBMs and GPOs geared to consumer protections, greater transparency and increased competition.
Relief of Stark, Physician Self-Referral Limitations: Some states will expand physician ownership arrangements and enable physicians to compete with hospitals and other providers.
Integration of social services with local delivery systems: States will facilitate delivery systems in which public health and provider services are fully integrated and population health management improvement is optimized.
The bottom line:
Total state spending on for healthcare services increased 5.7% to $3.2 trillion in 2025 slightly more than the 38-year average of 5.6%. In fiscal 2025 federal funds to states rose 5.5% following three consecutive years of decreases from fiscal 2022 to fiscal 2024. Thus, states were forced to provide more funding for their healthcare programs even as the U.S. economy sputtered and, most recently, as affordability issues mounted for voters.
Healthcare’s future in the U.S. will continue to be framed by federal policies and the political system from which its laws originate, but its transformational changes will increasingly originate in states where affordability, funding and system effectiveness issues are tackled head-on.
As financial challenges persist and clinical labor remains difficult to replace, many hospitals are turning to restructuring for cost savings.
KEY TAKEAWAYS
Care New England, Washington Regional Medical System, and Intermountain Health all announced layoffs that prominently affected administrative functions.
Hospitals are increasingly embracing “The Great Flattening,” consolidating nonclinical roles to reduce overhead while preserving frontline care capacity.
While leaner organizational structures may improve efficiency and speed decision-making, reducing leadership layers can also create operational strain and place added burden on remaining staff.
Three notable health systems announced layoffs in recent days, and in all three cases, management and leadership roles were largely affected. Even as labor costs continue to climb, clinical talent remains scarce, making administrative jobs often the primary target of workforce reductions.
Healthcare, and hospitals specifically, are not immune to “The Great Flattening” impacting corporate America. Companies across industries have spent recent years trimming down middle management, if not outright eliminating those positions, for the purpose of creating leaner workforce structures and cutting overhead.
In the case of hospitals, many have taken the step to consolidate functions that aren’t directly tied to delivering patient care.
The trend became particularly visible over the past week with Care New England, Washington Regional Medical System, and Intermountain Health all initiating reductions.
Providence, Rhode Island-based Care New England eliminated more than 30 leadership and nonclinical positions as part of a restructuring to address financial pressures and help close an estimated $20 million budget gap for fiscal year 2026. System president and CEO Michael Wagner said in a statement that “current financial conditions have made additional cost-saving measures unavoidable.”
Elsewhere, Washington Regional Medical System announced a restructuring plan that included 86 job cuts through consolidation of management and support functions. “By restructuring our management operations and consolidating roles, Washington Regional will reduce redundancies and optimize efficiency while still providing the high-quality care our community has come to expect,” Lucas Campbell, president and CEO of Washington Regional, said in the announcement.
At Intermountain Health, the 93 positions that were eliminated amid clinic closures and operational changes in Colorado and Montana looked a little different. While clinical roles were affected as part of the restructuring, the organization also pointed to leadership and administrative consolidation to improve efficiency and better align resources.
Though the circumstances surrounding the three systems differed, the overlap across the layoffs was the emphasis on leadership restructuring and administrative streamlining.
The logic behind these restructurings is straightforward: clinical workers are difficult to replace, whereas administrative costs often represent one of the few areas where organizations can still reduce spending relatively quickly.
According to Kaufman Hall’s latest National Hospital Flash Report for March, hospitals are operating more efficiently, but financial performance is still being weighed down by rising expenses. Length of stay, for example, was down 3% year-over-year, indicative of improved throughput. However, that clinical efficiency requires adequate staffing, and that labor is costly, as seen in a 4% rise in labor expense per calendar day year-over-year.
To just maintain their thin margins, hospitals are being forced to cut costs in areas that won’t directly hinder patient flow. That’s why administrative restructuring is often viewed as a less disruptive path toward reducing overhead while sustaining operational efficiency.
The result can also be a faster decision-making structure, allowing organizations to be strategically nimbler during a time when moving slow can leave hospitals behind the curve.
Still, the benefits come at a price. The loss of leadership and management may not be felt in financial performance immediately, but over time, it can create operational strain and place additional burden on remaining leaders and frontline staff.
For hospital executives, the question they must answer is how far their organization can streamline before efficiency gains start to create new organizational pressures.
The diagnosis is simple: “Our health-care system broke in 2020,” says Dr Tom Dolphin, an anaesthetist in London and boss of the British Medical Association. “We like to pretend it didn’t, but it really did.” In the early months of 2020, hospitals paused normal activity to free up beds as they braced for a wave of covid-19 patients. The strategy helped in a moment of crisis. But, several years on, it is becoming clear that those measures did lasting damage to health-care systems. Understanding why is less straightforward.
From admission to discharge, hospital care is now harder to access, takes longer and is of worse quality. The resulting toll includes avoidable deaths. Almost everyone is affected: across 18 rich democracies, satisfaction with health-care quality fell sharply after the pandemic and remains well below the pre-pandemic norm (see chart). Few data sets track hospital performance across countries, so The Economist collected data on health-care systems from all over the world to identify where things are going awry.
Chart: The Economist
The ordeal begins outside the emergency room, or the accident-and-emergency department (A&E).Waiting times have become longer in America, Europe and elsewhere. Hospital entry halls are more crowded and their staff more overstretched than they were before the pandemic, says Dr Alex Janke, an emergency physician at the University of Michigan.
In some parts of Australia almost half of patients arriving by ambulance wait more than 30 minutes outside A&E before space can be found for them. About a quarter of patients experience such delays in Britain, double the level in 2019. In Canada a record number of sick and injured simply give up and leave emergency rooms before they are seen by staff.
Once in A&E, care is slow. More than a quarter of patients in England spend over four hours there, roughly twice the level in 2019. In Massachusetts, a state with good data, more than two in five endure such waits. In Australia, nearly half of patients do so. There has also been a steep rise in “trolley waits”, the time between a doctor’s decision to admit a patient from A&E to the hospital and when a patient gets a bed. Last year nearly one in ten emergency admissions in England, or some 550,000 people, had waited more than 12 hours on a trolley—a 67-fold increase since 2019.
The real trolley problem
The Royal College of Emergency Medicine estimates that trolley waits contributed to almost 5,000 avoidable deaths in Britain’s hospitals last summer (health authorities have disputed such figures in the past).
Millions are stuck on waiting lists. Waits for hip replacements, to take one example, were above pre-pandemic levels in 2024 in nine out of 11 OECD countries, for which data exist. Canada is perhaps the worst hit. The median waiting time for specialist treatment was 29 weeks in 2025, more than a third higher than the 2019 baseline, according to the Fraser Institute, a think-tank in Vancouver. That is the second-worst result since the survey began in 1993; the record of 30 weeks was set in 2024. France’s main hospital union says access to health care in the country is undergoing an “unprecedented deterioration”.
In many countries the challenges of hospitals are viewed as the product of domestic policy choices. Britain’s government, like Giorgia Meloni’s in Italy, was elected in part on a promise to reduce waiting lists; Australian voters have punished politicians for ambulances delayed outside A&E; and in France, where staffing shortages have forced the closure of some clinics, there is talk of déserts médicaux.
But the long-term effects of the pandemic on hospitals are consistent across countries. A paper published in January by Luigi Siciliani of the University of York and his co-authors finds no relationship between a health-care system’s characteristics, be it public or private, and the effect of covid on its function. How much funding a system had, its bed capacity and how many physicians it employed, had little to no relation with big jumps in waiting lists for elective surgeries between 2020 and 2023, which occurred across the board.
Hospitals are jammed up despite being well-resourced. Funding for health care is the highest it has ever been, outside covid. After stabilising in the 2010s, spending in the OECD rose to nearly 10% of GDP following the pandemic. Median spending per person in Europe has risen 13% in constant prices since 2019. There are also more helping hands. Hospitals added nearly 140,000 jobs in America last year, more than the entire rest of the economy. Hiring by England’s National Health Service has increased sharply: its headcount has grown by 25% since 2019 to employ some 1.4m people—or 2% of the population.
All this presents a productivity puzzle. Some hospitals seem to be faring worse with more resources. In Australia, where the hospital workforce grew by almost 20% from 2019-24, elective surgeries are basically flat—the only difference is that the sick are waiting longer to be seen. Though there has been a gradual recovery, “On any measure you want to use in England, productivity is below where it was pre-pandemic,” says Max Warner of the Institute for Fiscal Studies, a think-tank in London.
Hospital productivity is hard to measure, but a good rule of thumb for spotting any decline in productivity is when spending grows faster than output, or revenue. Even in Germany, where the public system is considered to be in good shape, three out of four hospitals lost money in 2024, up from a third in 2019, according to a recent report by Roland Berger, a consultancy. In America operating costs for hospitals increased by 7.5% in 2025, about twice as fast as prices, says Aaron Wesolowski of the American Hospital Association, an industry body. Accordingly operating-profit margins have stagnated since 2019, even as profits in the rest of America’s economy recovered and grew.
Experts differ on the reasons why hospitals, as big, complex systems, have never fully recovered. One explanation lies in the hospital workforce. About half of the growth last year in the operating expenses of American hospitals came from inputs such as labour costs, which grew by 5.6% in nominal terms. Pandemic-era stresses increased churn as doctors and nurses resigned, or retired early. Those who stayed have reduced their “discretionary effort”, voluntary overtime work that helped frail health-care systems surge in peak periods. Burnout remains high, says Dr Margot Burnell of the Canadian Medical Association.
Is there a manager in the house?
Both factors have created an acute need for staff, and spurred a big hiring drive. The knock-on effect is that health-care workers today are less experienced and perhaps less productive. In Britain the share of nurses with less than one year of experience has doubled since 2015, a trend explained also by efforts to improve nurse-to-patient ratios. Moreover, though doctors and nurses have been added quickly, in some countries hiring for other jobs vital to productivity, such as theatre assistants and hospital managers, has not kept pace.
The other half of rapidly rising costs comes from having more, and sicker, patients. Four factors apply across rich countries: longer waits have left patients sicker, sicker patients take longer to treat, longer treatments clog capacity, reduced capacity creates longer waits. It is a doom loop.
First, in many places the queue has never been longer. Across the OECD, a group of mostly rich countries, elective-surgery activity dipped in 2020 by 19%. This has left hospitals with a long to-do list on top of their ordinary flow of new patients. More than 3m missed hospital stays accumulated in France between 2019 and 2024, according to estimates by the country’s health-care unions. In January nearly 40% of those waiting for treatment in Britain—or 2.8m people—had been languishing for more than 18 weeks. That was up from 570,000 in the same month of 2019. Mr Siciliani says that in order to cut those lists, hospitals need not only to return to their pre-pandemic productivity, but also to “support a big surge in activity”.
That task is made harder by a second big change: patients are sicker now. Long waits for treatment have made patients’ conditions more complex. Some diseases, such as cancers, stayed undiagnosed for longer because people avoided hospitals and clinics during the pandemic. (In America this effect was compounded by a rising avoidance of treatment due to expense.) In addition, populations are older than they were a few years ago. All this has seen chronic conditions, such as heart disease, cancer and liver disease rise as a share of hospital workloads. Death rates, not adjusted for age, are higher than before the pandemic. “Patients are staying longer and cost more to treat,” says Dr Richard Leuchter, an acute-medicine specialist at the University of California, Los Angeles.
Patients who stay longer take up precious bed capacity. Bed occupancy is further inflated by poorly performing general-practitioner services and chock-full care homes for the elderly, both of which funnel a growing number of sick and infirm into hospitals. Research by Dr Leuchter shows that prior to the pandemic about 64% of American hospital beds were occupied at any given time; during the pandemic that figure shot up to and remained at 75%. In some states, the average is as high as 88% (85% is considered “safe”).
American hospitals look positively capacious next to public systems, which run much leaner. In Ireland more than 94% of beds were occupied in 2019; that went up to 96% in 2025. In Britain beds are often 90% occupied and delays in discharging patients have grown. That worsens the initial problem, delays at the A&E door.
Hospitals are trying to break free from the cycle. Many are demanding more money and staff. A few are trying novel approaches to make room for the sickest patients. Some American hospitals, such as Dr Leuchter’s, are trying “avoidance” strategies that refer stable A&E patients to clinics without overnight beds. Many countries are trying types of “community care” in which treatment occurs outside hospitals, sometimes in patients’ homes. In ageing societies, it was inevitable that hospital care would change: there would be relatively fewer nails in thumbs, and relatively more chronically ill. The pandemic simply made people sicker, sooner.
In 1970 before there was ESPN Sports Center, there was ABC’s “Wide World of Sports” and its iconic montage opening featuring a disastrous ski jump attempt by Yugoslavia’s Vinko Bogataj and Jim Kay’s voice-over “the thrill of victory and agony of defeat.” It’s an apt framework for consideration of current affairs in the U.S. today and an appropriate juxtaposition for consideration the winners and losers in the White House Office of Management and Budget FY2027 released Friday.
Last week’s “Thrill of Victory” includes the recovery of Dude 14, the F-15E Strike Eagle pilot shot down over Iran Friday, the college basketball men’s and women’s’ Final 4 contests, the successful launch of Artemis II by NASA and, for some, the additional funding ($441 billion/+44% vs. FY 2026) for the Department of War in the President’s proposed budget.
And last week’s “Agony of Defeat” includes continued anxiety about the economy, especially fuel prices, growing concern the war in Iran begun February 28 might extend at a heavy cost in lives and money, and for health industry supporters, a $15 billion (-12% vs. FY 2026) cut to HHS and the 10-year, $911 billion Medicaid reduction in federal funding for Medicaid enacted in 2025 (HR1 The Big Beautiful Bill).
In its current form, this budget is unlikely to be enacted October 1, 2026: it’s best viewed as a signal from the White House about priorities it deems most important to the MAGA faithful in Congress, 28 state legislatures and 26 Governors’ offices controlled by Republicans. Though its explosive growth in of War Department funding to $1.5 trillion is eye-popping, cuts to healthcare are equally notable. Both are calculated bets as the mid-term election draws near (6 months) and clearly OMB is betting healthcare cuts will be acceptable to its base. Its view is based on three assumptions:
1- Healthcare cost cutting is necessary to fund other priorities important to its base. And there’s plenty of room for cuts in Medicaid, prescription drugs and hospitals because waste, fraud and abuse are rampant in all.
Medicaid: Medicaid is a state-controlled insurance program that covers 76 million U.S. women, children and low-income seniors primarily through private managed care plans that contract with states. In HR1, a mandatory work requirement was applied to able-bodied adult enrollees with the expectation enrollment will drop and state spending for Medicaid services will be less. But its enrollees are less inclined to vote than seniors in Medicare and its funding burden can be shifted to states.
Prescription Drugs: The White House asserts its “favored nation” pricing program will bring down drug costs but the combination of voluntary participation by drug companies and impenetrable patent protections in U.S. law neutralize hoped-for cost reductions. The administration wants to lower drug spending using its blunt instruments it already has: accelerated approvals, price transparency, pharmacy benefits manager restrictions et al. while encouraging states to go further through price controls, restrictive formularies and, in some, importation. In tandem, the administration sees CMMI modifications of alternative payment models (i.e. LEAD) as a means of introducing medication management and patient adherence in new chronic care pilots. Recognizing prescription drug prices are a concern to its base and all voters, the administration will use its arsenal of regulatory and political tools to amp-up support for increased state and federal pricing constraints without imposing price controls—a red line for conservatives.
Hospitals: Hospital consolidation is associated with higher prices and increased spending with offsetting community benefits debatable. Hospitals represent 43% of total U.S. health spending (31% inpatient and outpatient services, 12% employed physician services). In 4 of 5 U.S. markets, 2 hospital systems control hospital services. And hospital cost increases have kept pace with others in healthcare (+8.9% in 2024 vs. +8.1% for physician services and 7.9% for prescription drugs) but other household costs, wage increases and inflation. Lobbyists for hospitals have historically favored hospital-friendly legislation like the Affordable Care Act preferred by Democrats. The Trump administration sees site neutral payments, 340B reductions, expanded price transparency, limits on NFP system tax exemptions et al. and Medicaid cuts necessary curtailment of wasteful spending by hospitals. They believe voters agree.
Backdrop: Per the National Health Care Fraud Association, 10% of health spending ($560 billion) was spent fraudulently in 2024: the majority in the areas above.
2- The public is dissatisfied by the status quo and supports overhaul of the U.S. healthcare system to increase its affordability and improve its accessibility.
Consolidation: Through its Federal Trade Commission and Department of Justice, the White House has served notice it believes healthcare affordability and unreasonable costs are the result of hyper consolidation among hospitals, insurers, and key suppliers in the healthcare supply chain. It has appointed special commissions, task forces, and filed lawsuits to flex its muscle believing the industry has pursued vertical and horizontal consolidation for the purpose of reducing competition and creating monopolies. It shares this view with the majority of voters.
Corporatization: In tandem with consolidation, the White House asserts that Big Pharma, Big Insurer, and Big Hospital have taken advantage of the healthcare economy at the expense of local operators and mom and pop services. It presumes they’re run as corporate strongarms that access capital and leverage aggressive M&A muscle to drive out competitors and bolster their margins and executive bonuses. The administration treads lightly on corporate healthcare, seeking financial and political support while voicing populist concerns about Corporate Healthcare. Photo ops with CEOs is valued by the White House; corporatization is recognized as a necessary plus with a few exceptions. By contrast, most voters see more harm than good. Thus, the administration courts corporate healthcare purposely and carefully.
Backdrop: Intellectually, the majority of voters understand healthcare is a business that requires capital to operate and margins to be sustainable. But many think most healthcare organizations put too much emphasis on short-term profit and inadequate attention on their mission and long-term performance.
3-The U.S. healthcare industry will be an engine for economic growth domestically and globally if regulated less and consumers play a more direct role.
The administration is resetting its trade policies in response to suspension of at-will tariff policies that dominated its first year. At home, it seeks improved market access for U.S. producers of healthcare goods and services. It will associate this effort with US GDP growth and expanded privatization in healthcare. And it will assert that expansion of global demand for U.S. healthcare products and services is the result of the administration’s monetary policy geared to innovation and growth. And it will play a more direct role in oversight of foreign-owned/controlled health products and services and impose limits of their use of U.S. data.
The administration also seeks to protect intellectual property owned by U.S. inventors and companies by increasing its policing at home and abroad. In this regard, the administration will play a more direct role in the application of AI-enabled solution providers and expedite technology-enabled interoperability.
Backdrop: U.S. healthcare is the world’s most expensive system, so protections against IP theft are important, but the administration’s legacy in healthcare will be technology-enabled platforms that enable scale, democratize science and shift the system’s decision-making (and financial risk) consumer self-care.
Final thought:
The U.S. healthcare system does not enjoy the confidence of the White House: its proposed FY27 budget illustrates its predisposition to say no to healthcare and yes to other pursuits. It bases its position on three assumptions geared to support from its conservative base.
This budget proposal clearly illustrates why state legislators and Governors will play a bigger role in its future at home and abroad. And it means consumer (voter) awareness and understanding on key issues will be key to the system’s future, lest it is remembered for the agony of its defeat than the thrill of its victory.
In 1970 before there was ESPN Sports Center, there was ABC’s “Wide World of Sports” and its iconic montage opening featuring a disastrous ski jump attempt by Yugoslavia’s Vinko Bogataj and Jim Kay’s voice-over “the thrill of victory and agony of defeat.” It’s an apt framework for consideration of current affairs in the U.S. today and an appropriate juxtaposition for consideration the winners and losers in the White House Office of Management and Budget FY2027 released Friday.
Last week’s “Thrill of Victory” includes the recovery of Dude 14, the F-15E Strike Eagle pilot shot down over Iran Friday, the college basketball men’s and women’s’ Final 4 contests, the successful launch of Artemis II by NASA and, for some, the additional funding ($441 billion/+44% vs. FY 2026) for the Department of War in the President’s proposed budget.
And last week’s “Agony of Defeat” includes continued anxiety about the economy, especially fuel prices, growing concern the war in Iran begun February 28 might extend at a heavy cost in lives and money, and for health industry supporters, a $15 billion (-12% vs. FY 2026) cut to HHS and the 10-year, $911 billion Medicaid reduction in federal funding for Medicaid enacted in 2025 (HR1 The Big Beautiful Bill).
In its current form, this budget is unlikely to be enacted October 1, 2026: it’s best viewed as a signal from the White House about priorities it deems most important to the MAGA faithful in Congress, 28 state legislatures and 26 Governors’ offices controlled by Republicans. Though its explosive growth in of War Department funding to $1.5 trillion is eye-popping, cuts to healthcare are equally notable. Both are calculated bets as the mid-term election draws near (6 months) and clearly OMB is betting healthcare cuts will be acceptable to its base. Its view is based on three assumptions:
1- Healthcare cost cutting is necessary to fund other priorities important to its base. And there’s plenty of room for cuts in Medicaid, prescription drugs and hospitals because waste, fraud and abuse are rampant in all.
Medicaid: Medicaid is a state-controlled insurance program that covers 76 million U.S. women, children and low-income seniors primarily through private managed care plans that contract with states. In HR1, a mandatory work requirement was applied to able-bodied adult enrollees with the expectation enrollment will drop and state spending for Medicaid services will be less. But its enrollees are less inclined to vote than seniors in Medicare and its funding burden can be shifted to states.
Prescription Drugs: The White House asserts its “favored nation” pricing program will bring down drug costs but the combination of voluntary participation by drug companies and impenetrable patent protections in U.S. law neutralize hoped-for cost reductions. The administration wants to lower drug spending using its blunt instruments it already has: accelerated approvals, price transparency, pharmacy benefits manager restrictions et al. while encouraging states to go further through price controls, restrictive formularies and, in some, importation. In tandem, the administration sees CMMI modifications of alternative payment models (i.e. LEAD) as a means of introducing medication management and patient adherence in new chronic care pilots. Recognizing prescription drug prices are a concern to its base and all voters, the administration will use its arsenal of regulatory and political tools to amp-up support for increased state and federal pricing constraints without imposing price controls—a red line for conservatives.
Hospitals: Hospital consolidation is associated with higher prices and increased spending with offsetting community benefits debatable. Hospitals represent 43% of total U.S. health spending (31% inpatient and outpatient services, 12% employed physician services). In 4 of 5 U.S. markets, 2 hospital systems control hospital services. And hospital cost increases have kept pace with others in healthcare (+8.9% in 2024 vs. +8.1% for physician services and 7.9% for prescription drugs) but other household costs, wage increases and inflation. Lobbyists for hospitals have historically favored hospital-friendly legislation like the Affordable Care Act preferred by Democrats. The Trump administration sees site neutral payments, 340B reductions, expanded price transparency, limits on NFP system tax exemptions et al. and Medicaid cuts necessary curtailment of wasteful spending by hospitals. They believe voters agree.
Backdrop: Per the National Health Care Fraud Association, 10% of health spending ($560 billion) was spent fraudulently in 2024: the majority in the areas above.
2- The public is dissatisfied by the status quo and supports overhaul of the U.S. healthcare system to increase its affordability and improve its accessibility.
Consolidation: Through its Federal Trade Commission and Department of Justice, the White House has served notice it believes healthcare affordability and unreasonable costs are the result of hyper consolidation among hospitals, insurers, and key suppliers in the healthcare supply chain. It has appointed special commissions, task forces, and filed lawsuits to flex its muscle believing the industry has pursued vertical and horizontal consolidation for the purpose of reducing competition and creating monopolies. It shares this view with the majority of voters.
Corporatization: In tandem with consolidation, the White House asserts that Big Pharma, Big Insurer, and Big Hospital have taken advantage of the healthcare economy at the expense of local operators and mom and pop services. It presumes they’re run as corporate strongarms that access capital and leverage aggressive M&A muscle to drive out competitors and bolster their margins and executive bonuses. The administration treads lightly on corporate healthcare, seeking financial and political support while voicing populist concerns about Corporate Healthcare. Photo ops with CEOs is valued by the White House; corporatization is recognized as a necessary plus with a few exceptions. By contrast, most voters see more harm than good. Thus, the administration courts corporate healthcare purposely and carefully.
Backdrop: Intellectually, the majority of voters understand healthcare is a business that requires capital to operate and margins to be sustainable. But many think most healthcare organizations put too much emphasis on short-term profit and inadequate attention on their mission and long-term performance.
3-The U.S. healthcare industry will be an engine for economic growth domestically and globally if regulated less and consumers play a more direct role.
The administration is resetting its trade policies in response to suspension of at-will tariff policies that dominated its first year. At home, it seeks improved market access for U.S. producers of healthcare goods and services. It will associate this effort with US GDP growth and expanded privatization in healthcare. And it will assert that expansion of global demand for U.S. healthcare products and services is the result of the administration’s monetary policy geared to innovation and growth. And it will play a more direct role in oversight of foreign-owned/controlled health products and services and impose limits of their use of U.S. data.
The administration also seeks to protect intellectual property owned by U.S. inventors and companies by increasing its policing at home and abroad. In this regard, the administration will play a more direct role in the application of AI-enabled solution providers and expedite technology-enabled interoperability.
Backdrop: U.S. healthcare is the world’s most expensive system, so protections against IP theft are important, but the administration’s legacy in healthcare will be technology-enabled platforms that enable scale, democratize science and shift the system’s decision-making (and financial risk) consumer self-care.
Final thought:
The U.S. healthcare system does not enjoy the confidence of the White House: its proposed FY27 budget illustrates its predisposition to say no to healthcare and yes to other pursuits. It bases its position on three assumptions geared to support from its conservative base.
This budget proposal clearly illustrates why state legislators and Governors will play a bigger role in its future at home and abroad. And it means consumer (voter) awareness and understanding on key issues will be key to the system’s future, lest it is remembered for the agony of its defeat than the thrill of its victory.
We’re always asking: Why do drugs cost so freaking much?
And it’s a complicated question. There are a bunch of reasons — tobesure. But in our reporting over the years, like our stories on insulin and tuberculosis drugs, experts cited one big reason over and over again:
The pharmaceutical industry wages sophisticated legal battles to keep monopoly control over their best selling, most lucrative drugs — blocking generic competition, and increasing their prices along the way.
How did it come to be this way?
In this first episode of a new series – what we’re calling An Arm and a Leg 101 – we’re doing a crash course in the history of the drug patent system.
And the rags-to-riches story of one amazing guy is going to help us do it.
Al Engelberg got schooled in the Art of the Hustle at a young age, collecting dimes at an illegal bingo game on the Atlantic City boardwalk.
Later, he’d put those street smarts to use as he sat at the negotiation table in Washington D.C., hashing out the details of a law that would usher in the generic drug industry as we know it. Then made millions from the rules he helped write.
And as he admits, his legacy is mixed.
On the one hand: The rules Al Engelberg helped write — a grand bargain between generic drugmakers and patent-holding brand pharma companies — unleashed the power of generic drugs to save Americans money.
Nine out of ten prescriptions written today get filled with a generic.
On the other hand: In the process of making his fortune, Al Engelberg discovered loopholes, gaps, and perverse incentives in that grand bargain.
Gaps that allowed brand and generic drugmakers to profit by keeping generics for many hit drugs off the market.
So we now spend more than ever on medicine — and more than 20 percent of Americans report skipping their medication because they can’t afford it.
Al Engelberg, now 86, has spent the last 30 years — and millions of his own dollars — trying to close those gaps.
“I live in a world — a pharma world — where half the people think I’m dead, and the other half wish I was,” he tells us.
A wave of coordinated lawsuits is transforming the No Surprises Act’s arbitration system into a battlefield where insurers seek to intimidate physicians, rewrite the law and consolidate control.
As I have written, Congress passed the No Surprises Act (NSA) to safeguard patients from unforeseen medical expenses and establish a neutral, independent dispute resolution (IDR) process for payment conflicts between insurers and out-of-network providers. That design was meant to replace brinkmanship with an independent referee. What Congress designed as a neutral arbitration system is now being challenged by Big Insurance through coordinated litigation designed to narrow, intimidate, and ultimately reshape the law.
Major insurance conglomerates — including UnitedHealthcare entities, Elevance/Anthem affiliates and Blue Cross Blue Shield plans — have launched a coordinated series of federal lawsuits against providers, hospitals, and revenue-cycle vendors who have used IDR at scale. Employing nearly identical language, legal arguments, and allegations, these lawsuits are not isolated ordinary litigation. It is lawfare.
Narratively, these suits recast lawful engagement in the NSA’s IDR process as “abuse,” but functionally they are designed to intimidate physicians from seeking NSA protection. A Pennsylvania suit from UnitedHealthcare against NorthStar Anesthesia presents the most urgent and perilous threat to independent physicians. If Unitedhealthcare prevails, insurers will be able to obtain judgments of fraud against physicians who incorrectly file NSA disputes. The effects of this will be catastrophic for independent physician practices, who cannot afford to litigate against billion dollar behemoths that have armies of lawyers on staff and retainer.
If successful in these efforts, the insurers will further weaken physician practices and make them ripe for acquisitions, continuing the dangerous path of vertically integrated insurance corporations – and the further decimation of independent physician practices.
The “Flooding” Myth
The lawsuits all start in a similar fashion. Each one claims that the defendant “abused” federal legislation “designed to protect patients from unexpected medical bills” and asserts that “the IDR process has not functioned as intended.” This wording appears verbatim in cases filed months apart, across different jurisdictions, against completely different defendants. Insurers adopt the same basic allegation: providers or billing companies “flooded,” “overwhelmed,” or unleashed an “avalanche” of IDR disputes that insurers assert were ineligible.
Those characterizations are based on bad data. Before the NSA went into effect, the Departments of Health and Human Services, Labor, and Treasury projected that the independent dispute resolution (IDR) process would see roughly 17,000 disputes annually. In reality, the system received nearly hundreds of thousands of disputes in its first year. That mismatch didn’t happen by accident. The departments based their projections on New York’s experience with a state arbitration system, scaling the state’s dispute numbers nationally. But New York’s law relied on an independent benchmark called FAIR Health that sharply reduced disputes. This is a structural feature the federal law does not have.
A more realistic comparison was available at the time: Texas. Unlike New York, Texas operated an arbitration system without an external benchmark making it a better comparison for the federal No Surprises Act. In its first year, the Texas system received nearly 49,000 arbitration requests for a population of just under six million people. That experience should have been a clear signal that arbitration volume would be far higher than federal projections suggested. Insurers have used this modeling error to their rhetorical advantage in their litigation.
HENRY KOTULA 