Providers gird for worst, hope to blunt tax law Medicaid cuts

Modern Healthcare – Wednesday, July 9, 2025
By Michael McAuliff

The big bill is now the big law, and the healthcare industry is scrambling to work out how to cope with more than $1 trillion in cuts and a tangle of new red tape.

In the immediate aftermath of President Donald Trump enacting his “One Big Beautiful Bill” on Friday, providers and healthcare system experts said there are three main areas of focus for the health sector: learning the new law, planning to deal with its worst impacts and doing everything possible to get Congress to mitigate the damage.

“The number one priority for every single healthcare provider is to understand exactly what’s in here, to spell out clearly to their elected representatives what this means and to work like hell to keep a lot of this from actually happening,” said Debra Curtis, a principal at the lobbying and consulting firm McDermott+.

Related: $1T in healthcare cuts pass Congress, head to Trump

The healthcare industry clamored to comprehend the sweeping legislation while lawmakers debated it, but Congress made that difficult by substantially revising the bill until the last hour before the Senate passed it last Tuesday ahead of final action in the House two days later.

Now, providers are figuring out just how bad things might be, said Bill Bernstein, who leads Manatt Health, the consulting wing of law and lobbying firm he chairs, Manatt, Phelps & Phillips.

“Most healthcare providers are currently doing worst-case scenario planning,” Bernstein said. “Provider organizations are trying to absorb and understand everything this law encompasses and how that has changed.”

Such planning will vary based on where a provider is located, particularly since the bulk of the cuts hit Medicaid. That program is administered by states, which will devise their own ways to comply with provisions such as those mandating work requirements and stepped-up eligibility verifications across government healthcare programs.

For instance, Greater New York Health Association President Kenneth Raske wrote members immediately after the House approved the bill to explain that New York’s Essential Plan will be gutted because the new law prohibits most legal immigrants from receiving premium tax credits. The Essential Plan is available to New Yorkers who earn up to 250% of the federal poverty level, or $39,125 for a single person, who would otherwise enroll in subsidized health insurance exchange plans.

According to state data Raske cited, about half of Essential Plan enrollees are immigrants and the state will lose $7.3 billion a year while having to spend $2.7 more on state-only Medicaid funding.

“None of this will be easy, and a significant level of economic pain will be unavoidable,” Raske wrote.

Responses will vary by institution as providers assess their specific circumstances. But the pain is likely to include cutbacks, particularly at hospitals, which the American Hospital Association estimates will bear the brunt of the healthcare cuts.

“Cuts to federal healthcare spending of this magnitude are likely to have consequences for hospitals, and could lead some to lay off staff, offer fewer services, or close altogether,” said Zachary Levinson, project director of the Project on Hospital Costs at KFF, a health policy research institution.

Levinson allowed that health systems looking to work around the cuts could yield some benefits. “In some instances, hospitals could respond by operating more efficiently in ways that don’t necessarily harm patient care,” he said.

Rural struggles

Yet rural hospitals, which already are under pressure, face especially daunting problems, said Carrie Cochran-McClain, the chief policy officer at the National Rural Health Association.

According to KFF data, there were 50 fewer rural hospitals in 2023 than in 2017. That trend could accelerate. The day before the House completed work on the bill, McCook, Nebraska-based Community Hospital announced it would close its Curtis Medical Center in anticipation of the cuts.

Although the GOP included a $50 billion, five-year relief fund for rural providers in the measure, a Manatt Health-National Rural Health Association analysis predicts rural hospitals stand to lose $58 billion under the new law, Cochran-McClain said. Overall, rural providers will be out $155 billion, according to a KFF analysis.

Moreover, which providers will get that relief fund money, how much they will receive and when the money will come through, Cochran-McClain said. Half of the money will be evenly distributed among the states, but the Centers for Medicare and Medicaid Services will decide what happens to the remainder, and no one knows what the standards will be, she said.

The looming cuts also are already prompting conversations between providers, insurers and regulators, said Anu Sharma, CEO and founder of Millie, a Berkeley, California-based maternal healthcare provider. About a fifth of the company’s patients are enrolled in Medicaid, which pays for more than 40% of U.S. births, she said.

On Monday, Sharma met with hospital administrators and insurance companies to discuss how they can continue offering her company’s services in light of the looming cuts.

“We’re potentially going to put in place a program in partnership with a hospital that is going to put in some fraction of the cost, and some fraction of it is going to be the Medicaid plan. Then we’re going to talk to the commercial payers and see what they can do so that we can continue to provide care,” Sharma said. “Somebody has to pay for it.”

Health systems are already struggling to maintain maternity services and steep Medicaid cuts will lead to more closures and less access, Sharma said. “You’d rather not be in the business than be in the business and provide poor outcomes,” she said.

For physicians, the immediate future involves figuring out how to deal with patients who may lose marketplace or Medicaid coverage. Medicaid work requirements begin in 2027 and some of immigration restrictions in Medicaid and the exchanges start in 2026.

American Medical Association President Dr. Bobby Mukkamala said doctors have to anticipate a surge in uncompensated care, more patients who delay care over cost until their conditions worsen and more red tape trying to figure out someone’s insurance status.

“The consequences of this are that people will not be able to get care in the early phase of their disease,” said Mukkamala, an otolaryngologist who practices in Flint, Michigan, where about half his patients are on Medicaid.

While the new bureaucracy around eligibility will be different in each state, it will inevitably leave doctors and administrative staff scrambling to figure out if patients have coverage and asking all sorts of difficult questions. Are they a migrant who is still eligible? Is their illness disabling enough to exempt them from work requirements? Do noncompliant patients need to be reported? Is there a bureaucratic problem keeping a patient from coverage to which they are entitled?

Such considerations make Mukkamala think of his own experience having a brain tumor removed less than a year ago and needing an expensive medication every day.

“If I run out of dosing or I don’t bring it with me when we’re on a trip, my wife starts crying, because all she can picture in her mind is that now all of a sudden, here’s a day or two where this thing could be growing,” Mukkamala said.

Mukkamala imagines that for a patient on Medicaid facing stepped up eligibility determinations.

“I go in a year later and they say, ‘You know what, the documentation of your work is not satisfactory. We’re going to have to take you off’” Mukkamala said. “What the heck does that do for the thing in my head that now I’m waiting for — God, if things are good, a few weeks a month, maybe more, before they realize they made a mistake?”

In a community like his where a doctor knows the people, Mukkamala said things can be a little less formal in terms of compensation, and medical practices can let a neighbor slide. In more populous areas with a lot of low-income residents, that will likely become unsustainable, he said.

“That’s the kind of thing that leads physicians to burn out, because now you’re doing it in a way that’s more charitable, as opposed to just getting enough to keep your office open,” Mukkamala said.

It gets even more complicated if a procedure might require a hospital’s resources.

“I’m not going to start something in my office that I might have to finish in a hospital and not figure out how they’re going to get into the hospital, what’s the consequences of this going to be to them financially. These are just things that we shouldn’t have to worry about,” Mukkamala said. “But this is the hand that we’ve been dealt.”

More lobbying

Curtis said while clinicians and administrators do have to consider these ramifications, they should also do all they can to stop some of the law from taking effect over the next few years.

“Passage of this bill does not mean all this happens. Passage of this bill sets the path for this to all happen, and so your work is not done in advocating for changes to prevent these things from happening,” Curtis said.

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