The Perfect Healthcare Storm

Budget Cuts, Payment Freezes, and Tariffs

In an attempt to continue tracking the latest actions of the federal government’s legislative and executive branches affecting the healthcare industry since the last article was released in March, this article summarizes recent events in Washington and the impact of these changes on providers and patients.

During the early months of the Republican Party’s government trifecta (controlling the White House, Senate, and House of Representatives), both the Trump Administration and Congress have laid the groundwork for seismic change to the U.S. healthcare industry. In an attempt to continue tracking the latest actions of the federal government’s legislative and executive branches affecting the healthcare industry since the last article was released in March,[1] this article summarizes recent events in Washington and the impact of these changes on providers and patients.

“Big Beautiful Bill” Not so Beautiful for Healthcare

On May 22, 2025, The U.S. House of Representatives moved President Trump’s budget proposal forward, passing a budget reconciliation bill (with a one-vote margin)—the One Big Beautiful Bill Act of 2025—that renews expiring tax cuts and enacts new ones at a cost of almost $4 trillion, which would largely be paid for by cuts to other programs, including to federal healthcare programs; those cuts will have significant ramifications for the healthcare industry.[2]

The House bill contains a number of the provisions negatively affecting insurance coverage, with nearly 11 million Americans expected to lose their health insurance coverage under the current version.[3] Increasing the number of uninsured individuals could be financially devastating for some hospitals whose emergency departments would still be legally required to care for these individuals regardless of insurance coverage, as well as other providers who provide a large portion of their care to Medicaid enrollees.[4] The bill also includes over $1 trillion in federal healthcare program cuts, including upwards of $864 billion in Medicaid cuts.[5] Proposed Medicaid changes include:

• The introduction of federal work requirements by December 31, 2026, which require Medicaid recipients to work a certain number of hours per month to maintain coverage;
• The implementation of new enrollment/reenrollment paperwork requirements;
• The establishment of a moratorium on new or increased provider taxes, or even a complete eradication of these taxes, which states levy on healthcare providers as one avenue of financing Medicaid payments back to providers caring for Medicaid recipients; and
• The increase of the cost-sharing requirement for states that expanded Medicaid.[6]

In total, the nonpartisan Congressional Budget Office (CBO) predicts that the bill and the sunset of the enhanced Affordable Care Act (ACA) subsidies (discussed below) will result in 16 million Americans becoming uninsured by 2034,[7] which would have negative reverberating effects throughout the healthcare industry. The revenues of hospitals and healthcare providers would be especially affected by this increase in uninsured individuals, as it would necessarily increase their provision of uncompensated care.[8]

The bill is being intensely debated in the Senate, and whether senators can resolve their differences by President Trump’s requested July 4th passage deadline is indeterminate.[9] Additionally, once the Senate passes their revised version of the bill, the House must vote on it again.

Notably, in order to offset the trillions of dollars in tax breaks and other spending provisions in the bill, and mollify the budget hawks, Senate Republicans are considering some cuts to Medicare, although Senate Majority Leader John Thune has asserted that any cuts would be focused on “waste, fraud and abuse.”[10] Current discussions reportedly center on overpayments to Medicare Advantage (MA) plans, although whether there is enough support for this initiative is uncertain.[11]

The healthcare industry response to the bill has been widely critical, with hospital trade associations such as the Federation of American Hospitals, the Catholic Health Association, and America’s Essential Hospitals opposing the House bill.[12] The American College of Emergency Physicians (ACEP) expressed its deep concern that drastic changes to Medicaid under consideration will disproportionately affect emergency departments:

“Emergency departments are one of the few settings where patients are treated 24/7/365, regardless of their insurance status or ability to pay. The impact of policies that will leave millions of people without any health coverage falls squarely onto emergency physicians and patients. Patients with unmet health care needs will delay treatment and their conditions will worsen, leaving them with no other option than the emergency department. This creates avoidable health risks and threatens the viability of an already strained health care safety net.”[13]

Public opinion on the healthcare cuts is similarly negative, with most respondents to a recent Kaiser Family Foundation survey believing that the bill would “cause people to lose health coverage, negatively affect healthcare providers, and make it harder for their families to get and afford care.”[14] Specifically, 54% believe the bill would be bad for them and their families personally, 71% believe it would hurt providers, and 72% believe it would make people uninsured.[15]

ACA Marketplace Changes will Increase Uninsured

Separate from the budget reconciliation bill, but included in much of the analysis related to healthcare coverage and cost cuts, President Trump and Congress are expected to sunset enhanced premium subsidies for individuals with ACA insurance exchange marketplace coverage. These enhanced ACA subsidies, which are provided to lower-income individuals to purchase health insurance on the ACA marketplace, and have been in place since 2021, would be allowed to sunset at the end of 2025.[16] While this may be an upfront cost savings (estimated at $301 billion over 10 years[17]), a Commonwealth Fund report found that letting the enhanced ACA premium subsidies expire would cost states $34 billion in gross domestic product reductions and $2 billion in tax revenue.[18] The Brookings Institute estimates that 4.2 million marketplace enrollees will be forced to drop out if the legislation sunsets the enhanced premium subsidies.[19]

Additionally, the Centers for Medicare and Medicaid Services (CMS) issued a proposed rule in March 2025 to shorten the ACA marketplace enrollment period and require stricter eligibility reviews, among other changes.[20] In a recently-released CBO report, the agency estimated that changes to the ACA marketplaces will result in 900,000 additional marketplace enrollees becoming uninsured.[21]

Healthcare Payments Frozen

In April 2025, the U.S. Department of Government Efficiency (DOGE) launched a new effort called “Defend the Spend” to restrain billions of dollars in federal healthcare grants.[22] Federal officials are now required “to manually review and approve previously routine payments,” which has left “thousands of payments backed up, including funding for doctors’ and nurses’ salaries at federal health centers for the poor.”[23] While the effort is intended to force both the government and grantees to justify the spending and enhance transparency, agencies have reported “inconsistent instructions on how to proceed” and “immediate backlogs in processing payments.”[24] Federal health centers, which rely on regular drawdowns in promised grant money to pay for clinicians’ salaries and supplies, are already experiencing the negative impact of these backlogs and could ultimately close if funding continues to be withheld.[25]

Tariff Implications on Healthcare Organizations

The Trump Administration’s tariffs war has ebbed and flowed during the first five months, with the president instituting substantial tariffs on most U.S. trading partners, then announcing on April 9, 2025 that the administration would pause most reciprocal tariffs for 90 days.[26] Because medical supplies and devices tend to come from overseas, hospitals and other healthcare organizations are significantly concerned about rising costs and the uncertain availability of supplies.[27] A recent Black Book Market Research study of 200 industry professionals found that 80% of respondents expect hospitals’ and health systems’ costs to increase at least 15% in the next several months due to import cost increases.[28] America’s Essential Hospitals and other healthcare groups and organizations sent a letter to the U.S. trade representative asserting that the tariffs:

“ultimately place further financial pressure on providers, hospitals, and health systems, particularly those located in rural and medically underserved areas… increased costs on medical and dental supplies could impede [organizations’] ability to improve treatment outcomes, foster innovation, and meet the growing needs of pediatric and adult populations. This could result in longer wait times, reduced access to necessary treatments, and greater financial strain on health care systems that are already under pressure.[29]

While tariffs do not currently apply to pharmaceuticals, President Trump has stated that a “major” tariff on pharmaceuticals will be implemented “very shortly.”[30] In 2024, the U.S. imported nearly $213 billion worth of pharmaceuticals,[31] meaning that any pharmaceutical tariff will likely have a far-reaching impact on the healthcare industry.

Conclusion

Healthcare organizations are experiencing significant unpredictability and uncertainty as a result of these abrupt and capricious federal policy changes. With organizations already operating on thin margins, changes that result in higher expenses and/or decreased revenue could be a death knell for hospitals and other providers, with the ultimate consequence of significantly reducing patients’ access to healthcare services. Healthcare organizations, and their professional advisors, should closely monitor developments in Congress over the coming months and begin scenario planning to prepare for potential operational and financial impacts from these policy changes.

This article was previously published by HCC Health Capital Topics, Volume 18, Issue 6, June 2025, and is republished here by permission.

[1]             “Fast & Furious: Healthcare Policy Edition” By Todd Zigrang and Jessica Bailey-Wheaton, NACVA QuickRead, March 26, 2025, https://quickreadbuzz.com/2025/03/26/healthcare-zigrang-bailey-wheaton-fast-and-furious/ (Accessed 6/10/25).

[2]             “Health Provisions in the 2025 Federal Budget Reconciliation Bill” Kaiser Family Foundation, May 22, 2025, https://www.kff.org/tracking-the-affordable-care-act-provisions-in-the-2025-budget-bill/#:~:text=On%20May%2022%2C%20the%20House,Medicare%20and%20Health%20Savings%20Accounts. (Accessed 6/10/25); “H.R.1 – One Big Beautiful Bill Act” 119^th Congress (2025-2026), https://www.congress.gov/bill/119th-congress/house-bill/1/text (Accessed 6/12/25).

[3]             “Close to 11 million people would lose health insurance under Big Beautiful Bill” By Susan Morse, Healthcare Finance, June 6, 2025, https://www.healthcarefinancenews.com/news/close-11-million-people-would-lose-health-insurance-under-big-beautiful-bill (Accessed 6/11/25).

[4]             Ibid.

[5]             “GOP tax bill will cost health sector $1T: CBO” By Michael McAuliff, Modern Healthcare, June 4, 2025, https://www.modernhealthcare.com/politics-policy/tax-bill-medicaid-cuts-cbo-gop (Accessed 6/11/25).

[6]             “Close to 11 million people would lose health insurance under Big Beautiful Bill” By Susan Morse, Healthcare Finance, June 6, 2025, https://www.healthcarefinancenews.com/news/close-11-million-people-would-lose-health-insurance-under-big-beautiful-bill (Accessed 6/11/25); “New CBO estimates show 2025 reconciliation bill would have impacts similar in magnitude to 2017 ACA repeal bills” By Christen Linke Young, Brookings, June 4, 2025, https://www.brookings.edu/articles/new-cbo-estimates-show-2025-reconciliation-bill-would-have-impacts-similar-in-magnitude-to-2017-aca-repeal-bills/ (Accessed 6/11/25).

[7]         “House Budget Bill and Tax Credit Expiration Will Make It Harder to Get and Afford Marketplace Health Plans” By Sara R. Collins and Carson Richards, The Commonwealth Fund, June 5, 2025, https://www.commonwealthfund.org/blog/2025/house-budget-bill-and-tax-credit-expiration-marketplace-affordability#:~:text=Millions%20More%20Uninsured%20and%20Sicker,poorer%20health%2C%20and%20shorter%20lives. (Accessed 6/12/25).

[8]             “Leaked HHS budget signals $40B in cuts, assumes ACA subsidies expire” By Noah Tong, Fierce Healthcare, April 17, 2025, https://www.fiercehealthcare.com/regulatory/hhs-budget-slashed-40-billion-first-look-hhs-reorganization-leaked-document (Accessed 4/17/25).

[9]             “Close to 11 million people would lose health insurance under Big Beautiful Bill” By Susan Morse, Healthcare Finance, June 6, 2025, https://www.healthcarefinancenews.com/news/close-11-million-people-would-lose-health-insurance-under-big-beautiful-bill (Accessed 6/11/25).

[10]           “Medicare is a target as Senate GOP faces megabill math issues” By Jordain Carney, Meredith Lee Hill and Robert King, Politico, June 5, 2025, https://www.politico.com/news/2025/06/05/medicare-is-a-target-as-senate-gop-faces-megabill-math-issues-00389537 (Accessed 6/11/25).

[11]           Ibid.

[12]        “GOP Senators mull Medicare cuts in bid to get megabill over the finish line: media report” By Noah Tong and Paige Minemyer, Fierce Healthcare, June 5, 2025, https://www.fiercehealthcare.com/payers/house-gop-advances-budget-megabill-imposing-stricter-medicaid-work-requirements (Accessed 6/11/25).

[13]        Ibid.

[14]           “Polls and politics look grim for One Big Beautiful Bill” By Michael McAuliff, Modern Healthcare, June 6, 2025, https://www.modernhealthcare.com/politics-policy/medicaid-cuts-one-big-beautiful-bill-act-kff (Accessed 6/11/25).

[15]           “Polls and politics look grim for One Big Beautiful Bill” By Michael McAuliff, Modern Healthcare, June 6, 2025, https://www.modernhealthcare.com/politics-policy/medicaid-cuts-one-big-beautiful-bill-act-kff (Accessed 6/11/25); “KFF Health Tracking Poll: The Public’s Views of Funding Reductions to Medicaid” By Audrey Kearney, et al., Kaiser Family Foundation, June 6, 2025, https://www.kff.org/medicaid/poll-finding/kff-health-tracking-poll-the-publics-views-of-funding-reductions-to-medicaid/ (Accessed 6/11/25).

[16]        “Five Things to Know about the Renewal of Extra Affordable Care Act Subsidies in the Inflation Reduction Act” By Cynthia Cox, Kaiser Family Foundation, August 11, 2022, https://www.kff.org/policy-watch/five-things-to-know-about-renewal-of-extra-affordable-care-act-subsidies-in-inflation-reduction-act/#:~:text=Subsidies%20in%20the%E2%80%A6-,Five%20Things%20to%20Know%20about%20the%20Renewal%20of%20Extra%20Affordable,in%20the%20Inflation%20Reduction%20Act&text=As%20part%20of%20the%20Inflation,previously%20priced%20out%20of%20coverage. (Accessed 4/21/25).

[17]           “New CBO estimates show 2025 reconciliation bill would have impacts similar in magnitude to 2017 ACA repeal bills” By Christen Linke Young, Brookings, June 4, 2025, https://www.brookings.edu/articles/new-cbo-estimates-show-2025-reconciliation-bill-would-have-impacts-similar-in-magnitude-to-2017-aca-repeal-bills/ (Accessed 6/11/25).

[18]           “The Cost of Eliminating the Enhanced Premium Tax Credits: Economic, Employment, and Tax Consequences” By Leighton Ku, et al., The Commonwealth Fund, Issue Briefs, March 3, 2025, https://www.commonwealthfund.org/publications/issue-briefs/2025/mar/cost-eliminating-enhanced-premium-tax-credits (Accessed 4/17/25).

[19]        “New CBO estimates show 2025 reconciliation bill would have impacts similar in magnitude to 2017 ACA repeal bills” By Christen Linke Young, Brookings, June 4, 2025, https://www.brookings.edu/articles/new-cbo-estimates-show-2025-reconciliation-bill-would-have-impacts-similar-in-magnitude-to-2017-aca-repeal-bills/ (Accessed 6/11/25).

[20]           “GOP tax bill will cost health sector $1T: CBO” By Michael McAuliff, Modern Healthcare, June 4, 2025, https://www.modernhealthcare.com/politics-policy/tax-bill-medicaid-cuts-cbo-gop (Accessed 6/11/25).

[21]           “Ibid.

[22]           “DOGE begins to freeze health-care payments for extra review” By Dan Diamond, et al., The Washington Post, April 17, 2025, https://www.washingtonpost.com/politics/2025/04/17/doge-trump-grants-hhs-nih-backlog/?utm_campaign=wp_post_most&utm_medium=email&utm_source=newsletter&carta-url=https%3A%2F%2Fs2.washingtonpost.com%2Fcar-ln-tr%2F4228cad%2F680278c809671829d6cd43ef%2F596adcaeade4e24119a8edff%2F26%2F52%2F680278c809671829d6cd43ef (Accessed 4/21/25).

[23]           Ibid.

[24]           Ibid.

[25]           Ibid.

[26]           “Tariff turmoil: Hospitals, device makers welcome pause, but fear long-term pain” By Susanna Vogel and Susan Kelly, Healthcare Dive, April 10, 2025, https://www.healthcaredive.com/news/tariff-turmoil-hospitals-device-makers/745093/#:~:text=%E2%80%9CThis%20ultimately%20places%20further%20financial,continue%20caring%20for%20their%20communities.%E2%80%9D (Accessed 4/21/25).

[27]           Ibid.

[28]           Letter to The Honorable Jameison Greer, U.S. Trade Representative, AdvaMed, et al., dated April 1, 2025, available at: https://www.advamed.org/wp-content/uploads/2025/04/Health-Group-Tariff-Letter-to-USTR-4-1-25.pdf (Accessed 4/21/25).

[29]           Ibid.

[30]           “Pharmaceutical stocks rise as Trump pauses tariffs but not for China” By Annika Kim Constantino, CNBC, April 9, 2025, https://www.cnbc.com/2025/04/09/trump-pharmaceutical-tariffs-announcement.html (Accessed 4/21/25).

[31]           Ibid.

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Todd A. Zigrang, MBA, MHA, FACHE, CVA, ASA, ABV, is president of Health Capital Consultants, where he focuses on the areas of valuation and financial analysis for hospitals and other healthcare enterprises. Mr. Zigrang has significant physician-integration and financial analysis experience, and has participated in the development of a physician-owned, multispecialty management service organization and networks involving a wide range of specialties, physician owned hospitals, as well as several limited liability companies for acquiring acute care and specialty hospitals, ASCs, and other ancillary facilities.

Mr. Zigrang can be contacted at (800) 394-8258 or by e-mail to tzigrang@healthcapital.com.

Jessica Bailey-Wheaton, Esq., is vice president and general counsel for Heath Capital Consultants, where she conducts project management and consulting services related to the impact of both federal and state regulations on healthcare exempt organization transactions, and provides research services necessary to support certified opinions of value related to the fair market value and commercial reasonableness of transactions related to healthcare enterprises, assets, and services.

Ms. Bailey-Wheaton can be contacted at (800) 394-8258 or by e-mail to jbailey@healthcapital.com.