Here’s where the shutdown pain is most acute in healthcare

Modern Healthcare – Thursday, October 2, 2025
By Michael McAuliff

The healthcare sector is already feeling the pain of the federal government shutdown that began Wednesday.

Although programs such as Medicare and Medicaid will continue operating during the shutdown, and much of the healthcare system is privately financed, safety-net providers and others aren’t fully spared.

Funding lapses and the expiration of legal authorities for some healthcare policies mean an immediate impact for telehealth and hospital-at-home providers, financially strapped hospitals and community health centers.

The shutdown came to pass because President Donald Trump and the Republican congressional majority couldn’t come to terms with Democrats over federal spending before the beginning of fiscal 2026 on Wednesday. Congress also failed to renew healthcare programs that expired the same day. A Senate Republican effort to advance the spending bill failed again on Wednesday.

In an instant, Medicare became unable to reimburse for telehealth and hospital-at-home services, with few exceptions.

The shutdown also comes as providers are already girding for the implementation of the $1.1 trillion in Medicaid and health insurance exchange cuts at the heart of Trump’s tax law.

Without knowing how long the shutdown will last or how long it will take Congress to reauthorize Medicare coverage of telehealth and hospital-at-home services, providers must decide whether to continue treating patients and risk not being reimbursed and must warn patients they may be on the hook for costs in the interim.

“Most providers and hospital systems are taking calculated risks to continue care during this time, but long-term continuity depends on action by our telehealth champions in Washington to restore these flexibilities and ensure retroactive reimbursement,” Kyle Zebley, senior vice president of public policy at the American Telemedicine Association said in a news release Wednesday.

Because of the time it takes Medicare to process claims and distribute reimbursements, telehealth and hospital-at-home providers may not encounter cashflow issues during the near term.

That’s not the case for federally qualified health centers, safety-net facilities that receive Medicaid disproportionate share hospital payments, and hospitals eligible for the Medicare-dependent hospital and low-volume hospital payment add-ons.

Community health centers lost their funding Wednesday, a long-delayed $8 billion Medicaid DSH cut took effect and the Medicare reimbursement add-ons expired. Extra Medicare payments for ambulance services and medical education funding also sunsetted.

And the Health and Human Services Department is operating with a skeleton crew, meaning companies and organizations counting on new regulations or other actions will have to wait.

Historically, Congress tends to make providers whole when funding or program authorizations run out. But providers eking by with very thin margins could struggle in the short term as they are forced to cancel telehealth and hospital-at-home appointments and contend with lower Medicare payments absent add-ons.

“Even though payments are typically restored, a lapse is unpredictable and uncertain for hospital administrators, and we advocate for long-term extensions,” said Alexa McKinley, director of government affairs and policy at the National Rural Health Association.

The smaller a provider, or the narrower their margins, the heavier the burden on them and their patients.

“We see firsthand the anxiety and uncertainty this brings to patients who depend on government-supported programs for their care and well-being, and we feel that uncertainty ourselves as we experience the conflict of helping patients achieve healthier lives in the face of limited resources,” the American Academy of Family Physicians said in a news release Wednesday.

Community health centers, which serve more than 34 million patients a year, are funded both through annual discretionary appropriations — like those that just expired — and through mandatory funding. However, Congress also hasn’t reauthorized the mandatory stream for two years and has approved a series of stopgap fixes that rode along with short-term appropriations bills.

These clinics won’t run out of money right away because there’s still some left from prior spending bills. “CHCs should be able to draw down funding and are advised to submit requests as usual,” a National Association of Community Health Centers spokesperson wrote in an email.

But community health centers aren’t flush with cash, and a gap in federal funding will worsen their financial strain, said Amanda Pears Kelly, CEO of Advocates for Community Health. “They don’t have backup dollars,” and most have enough cash to run for just 30 days without new funding, she said.

Most federally qualified health centers barely break even, Pears Kelly said. “They operate on 1%-2% margins. Many of them are even in the red,” she said.

While community health centers will still get reimbursements from Medicaid, Medicare and private insurers, direct federal funding typically accounts for about 15% of the money coming in, Pears Kelly said.

These federal funding problems, and the fact that community health centers haven’t gotten funding boosts in several years even as costs rise, make it difficult for them to plan ahead, build and sustain their workforces, and borrow money, Pears Kelly said.

“The ripple effect is pretty catastrophic,” Pears Kelly said.

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