On July 4, President Donald Trump signed the legislation known as the One Big Beautiful Bill Act (OBBBA) that Congress passed through the reconciliation process. The bill extends provisions of the Tax Cuts and Jobs Act (TCJA) of 2017 and enacts additional tax cuts, border security measures, and defense spending. It also includes significant cuts to Medicaid and health insurance exchange marketplaces to pay for the legislation. Below, we explore key provisions in the bill’s final version that will impact healthcare organizations, as well as strategies to help organizations respond to the changes.
Impact on Medicaid Funding & the Uninsured Rate
The Congressional Budget Office (CBO) projects the final version of OBBBA will reduce Medicaid spending by more than $1 trillion over 10 years and will reduce exchange funding by an additional $200 billion. CBO projects the uninsured rate will increase by 17 million individuals by 2034 due to the Medicaid (11.8 million), exchange (4.2 million), and other (1 million) provisions. Despite the significant Medicaid cuts, the legislation increases the deficit by $3.4 trillion compared to the 2025 budget baseline.
The impacts on Medicaid spending and the uninsured primarily result from revised eligibility and enrollment requirements and limitations on funding mechanisms states use to support safety net providers.
Key Provisions in the Final Version of OBBBA
Below is a summary of the major Medicaid and Medicare provisions in the final version of the reconciliation bill. Please note this is not intended to be exhaustive or comprehensive.
Provider Taxes
As of the date of enactment, the legislation freezes provider taxes and sets the hold harmless threshold for new taxes at 0%. Existing provider taxes in non-expansion states remain frozen at the rate as of enactment of the legislation.
For expansion states, starting in fiscal year (FY) 2028, provider taxes are phased down by 0.5% per year as follows, until they reach 3.5% in 2032.
- FY 2028: 5.5%
- FY 2029: 5%
- FY 2030: 4.5%
- FY 2031: 4%
- FY 2032 and beyond: 3.5%
While taxes are frozen on nursing homes and intermediate care facilities in expansion states, they are not subject to the phase-down.
Similar to the House’s previous version of the bill and the recently proposed Medicaid rule, the enacted legislation also revises the circumstances under which the requirements that taxes be broad-based and uniform can be waived. Current tax programs in several states are no longer permissible.
CBO projects the two provider tax provisions will save $226 billion over 10 years (up from $124 billion in the previous House version).
State-Directed Payments (SDPs)
Upon enactment, the bill caps SDPs at 110% of Medicare for non-expansion states, and at 100% of Medicare for expansion states. Higher SDPs that have already been approved, or for which there was a good-faith effort to obtain approval, are grandfathered through December 31, 2027. Starting January 1, 2028, these grandfathered payments will be reduced by 10% annually until they reach the new caps. If a current non-expansion state later expands Medicaid, its SDP limit will be reduced to 100% of Medicare.
CBO projects the SDP provision in the enacted legislation will save $149 billion over 10 years (up from $72 billion in the previous House version).
Emergency Medicaid FMAP
Effective October 1, 2026, the Federal Medical Assistance Percentage (FMAP) is reduced to the state’s natural match for individuals who would otherwise be eligible for expansion coverage if not for their immigration status. The previous House-passed version of the bill included a similar provision. CBO projects this will save $29 billion over 10 years.
Work Requirements
Beginning December 31, 2026, the bill requires Medicaid beneficiaries aged 19 through 64 to work or engage in qualifying activities, e.g., community service, educational programs, job training, for no less than 80 hours per month. Among other groups, the legislation exempts pregnant women, individuals with disabilities, and parents, guardians, and caretaker relatives of children under 14 from these requirements. CBO projects the provision in the final version will save $325 billion over 10 years, compared to $289 billion in the previous House version.
Although work requirements are the largest single source of Medicaid savings in the bill, they may not result in a significant, immediate increase in uncompensated care costs for hospitals and health systems, given that many groups of Medicaid beneficiaries who frequently use inpatient hospital services will be exempt. Instead, the biggest initial impact of this provision will likely be on Medicaid managed care organization enrollment.
Eligibility Redeterminations
Effective for Medicaid coverage renewals on or after December 31, 2026, the bill requires eligibility redeterminations at least once every six months for the expansion population. A similar provision was included in the House version of the bill. CBO projects this will save $62 billion over 10 years.
Long-Term Care Facility Staffing Ratios
Upon enactment, the bill prohibits implementation of the long-term care staffing ratios through September 31, 2034. CBO projects this will save $23 billion over 10 years.
Physician Fee Schedule (PFS)
The bill provides a 2.5% increase in the PFS conversion factor for services from January 1, 2026 through December 31, 2026. This differs from the previous House version, which provided an update of 75% of the Medicare Economic Index (MEI) in 2026 and 10% of MEI thereafter. CBO projects the provision in the final version will increase costs by $2 billion.
Other Changes From the Previous House-Passed OBBBA
In addition to the above provisions, the bill’s final version includes the following provisions that differ from the version of the bill previously passed in the House:
- Rural Health Transformation Fund: The bill provides a fund of $50 billion over five years ($10 billion per year from FY 2026 to FY 2030) for which states may apply. Half of the funding ($5 billion) each year will be allocated evenly among the approved states. The other half will be allocated based on each state’s population that lives in a rural census track of a metropolitan statistical area, the proportion of nationwide rural health facilities located in each state, the “situation” of hospitals that serve a disproportionate number of low-income patients, and “other factors that the administrator determines appropriate.”
Funds may be used for the following health-related activities:- Improving prevention/management of chronic disease
- Increasing payments to providers for services specified by CMS
- Providing assistance for adoption of technology that improves care delivery, efficiency, cybersecurity, or health outcomes
- Recruiting clinicians to rural communities
- Rightsizing rural delivery systems by identifying needed services
- Supporting access to substance use disorder treatment
- Encouraging adoption of innovative care models
- Other uses as determined by the Administrator
While the fund is intended for rural transformation, states may be able to spend the funds in non-rural areas in some situations based on the statute's language and comments from CMS Administrator Dr. Mehmet Oz.1
- Medicaid DSH Delay: While the previous House-passed version of OBBBA delayed the ACA’s Medicaid Disproportionate Share Hospital (DSH) cuts until FY 2029, the delay was removed from the final enacted legislation. Unless Congress later intervenes, Medicaid DSH payments to states will be reduced by $8 billion in FY 2026.
- FMAP Reduction for States That Cover Undocumented Individuals – Removed From Final Legislation: The previous House-passed version of the bill included language that would lower the FMAP from 90% to 80% for expansion states, if Medicaid or other state-run programs provide health coverage for immigrants (except for children and pregnant women) who aren’t eligible for certain public benefits. However, this language was not included in the final enacted version, as it was ruled “extraneous” by the Senate parliamentarian.
- Medicare Statutory Pay-As-You-Go (S-PAYGO) Sequester: While not explicitly included in the enacted OBBBA, the legislation increases the deficit by $3.4 trillion and therefore may trigger the S-PAYGO mandatory sequester. If so, current law requires a sequester of certain mandatory spending programs unless Congress steps in to prevent it. In the event of a sequester, reductions in Medicare spending would be limited to 4% annually.
How Should Healthcare Organizations Respond?
Our Healthcare Market Point of View provides a framework to help healthcare organizations plan their response to these changes based on five core capabilities necessary to thrive in the current environment. Below, we explore important considerations within each capability.
Financial Discipline: Generating the margins necessary to thrive by securing and maintaining market relevance. Key considerations include:
- Cost Structure Efficiency: Continue to seek performance improvement opportunities in labor and non-labor cost areas.
- Negotiated Managed Care Rates: Utilize available price transparency data to benchmark negotiated rates relative to competitors to understand rate improvement opportunities.
- Revenue Cycle Excellency: Provider organizations can no longer afford an underperforming revenue cycle. In addition to reducing denials and leakage to realize contracted rates, it is important for revenue cycles to connect individuals who have lost Medicaid with other sources of coverage or financial assistance for those who qualify.
Strategic Agility: Calibrating strategic direction as conditions demand and opportunities present. Key considerations include:
- Increased Focus on Strategic Planning: Our Mindsets 2025 Healthcare Executive Leadership Report finds that nearly 40% of executives report spending less than 10 hours each month on strategic planning. Given the increased uncertainty and risk of payment cuts, executives should increase the time dedicated to strategic planning and execution. This will support the continued alignment of activities and investments with the organization’s goals and objectives. For example, organizations may consider developing a process for reviewing proposed expense reduction efforts, so they don’t detract from investments necessary to achieve strategic goals.
Aligned Growth: Pursuing strategic investments, integration activity, and partnerships across the healthcare value chain. Key considerations include:
- Integration Opportunities: Particularly for organizations with strong balance sheets, passage of the OBBBA will create opportunities to integrate with other organizations seeking the scale necessary to continue serving their communities. Organizations should consider proactively developing a framework to evaluate potential integration opportunities to determine if they support aligned growth strategies.
Regulatory Excellence: Understanding the rapidly evolving regulatory environment and acting strategically within it. Key considerations include:
- Traditional Medicare: Given the anticipated loss of Medicaid coverage and increase in the uninsured, hospitals need to capture all Medicaid days for DSH and 340B eligibility (if applicable). Hospitals that have access to the 340B program may need to consider additional strategies to remain eligible. Beyond DSH, hospitals should explore strategies to help capture additional allowable Medicare bad debt, optimize their wage index, and expand access to IME/GME funding.
- Medicare Advantage (MA): Given the revenue cycle challenges providers are experiencing, organizations should review their portfolio of MA contracts to determine if the relationships continue to meet their strategic objectives.
Talent Optimization: Building exceptional teams and equipping them to succeed in executing mission-aligned business and care delivery models. Key considerations include:
- Workforce Alignment: Organizations should focus on aligning their workforce with their care delivery models. This is particularly true of the physician enterprise, given that many organizations have opportunities to better align compensation and staffing with their overarching strategic objectives to improve outcomes and care delivery efficiency. For example, as employed advanced practice providers (APPs) increase as a percentage of the provider workforce, organizations need to develop a skills-based approach to hiring and a career matrix to deploy these resources effectively and efficiently.
How Forvis Mazars Can Help
Our professionals at Forvis Mazars are committed to helping healthcare organizations develop the core capabilities necessary to understand and adapt to the impact of evolving federal policies and congressional legislation. If you have questions about upcoming policy changes and how they may affect your organization, please reach out to a professional on our team.
- 1“Oz Works to Assuage GOP Members on Medicaid Relief Fund,” politico.com, July 2, 2025.