Second reconciliation bill eyes more healthcare cuts

Congressional Republicans are planning a second budget reconciliation package this year that would include further cuts in federal healthcare spending.

The initial talk about a reconciliation package for FY26 followed the July 4 signing of a FY25 reconciliation package called the One Big Beautiful Bill Act (OBBB). That law holds 10-year federal Medicaid spending increases to 7%, instead of previously projected 19% increases, saving the government more than $1 trillion — among other healthcare provisions.

Congressional budget rules allow passage of a reconciliation bill with tax, spending and debt provisions once per fiscal year. It allows the Senate to pass the measure with just 51 votes, instead of the usual 60 votes needed to end a filibuster.

Congressional leaders recently have begun to discuss a new reconciliation package. House Budget Committee Chairman Jodey Arrington (R-Texas), said in an interview that the next reconciliation bill’s provisions could include:

• Implementing Medicare site-neutral payments
• Cutting the federal match for ACA Medicaid enrollees
• Penalizing states for coverage of undocumented immigrants

Implementing comprehensive site-neutral payment policy in Medicare would save $146 billion over 10 years, according to a list of $5 trillion in 10-year federal cuts congressional Republicans floated in January. Lowering the 90% federal match rate for the Medicaid expansion population to equal the rate set by the traditional Medicaid formula would save the federal government $561 billion, according to the document.

Other approaches

Paul Keckley, who advised the Obama White House on provisions to include in the Affordable Care Act, said healthcare was likely to feature prominently in a second reconciliation package this year. Provisions he expected in that bill include site neutral payments, 340B cuts and prior authorization provisions.

“I think those geese are cooked,” Keckley said in an interview about the three new areas of expected congressional action.

Earlier this year, Republicans on the Senate Health, Education, Labor and Pensions (HELP) Committee issued a report calling for changes that include requiring 340B covered entities to provide detailed annual reporting on how 340B revenue is used, among other changes.

But new reconciliation bill also could include “clawbacks” of provisions in the OBBB to address political concerns of Republicans facing mid-term election in 2026, Keckley said.

Reversing the cuts

Sen. Josh Hawley (R-Missouri), who voted to pass the OBBB, recently introduced legislation to repeal some OBBB provisions on provider taxes ($191 billion over 10 years) and state directed payments ($149 billion over 10 years). That bill was backed by the American Hospital Association (AHA). It also would double the $50 billion funding for the Rural Health Transformation Fund and extend its duration from five to 10 years.

“If enacted, your legislation will help hospitals and communities mitigate the impact of the Medicaid reductions that were part of the recently enacted One Big Beautiful Bill Act,” Rick Pollack, president and CEO of AHA wrote in a letter to Hawley backing the bill.  

Since many of the OBBB Medicaid provisions targeting providers don’t go into effect until 2027, hospital advocates were expected to push for mitigations or eliminations of those provisions over the coming months and years. For instance, the law cuts the provider tax safe harbor limit for Medicaid expansion states by 0.5% annually starting in fiscal year 2028 and reduces state directed payments (SDP) provider payments by 10 percentage points each year starting Jan. 1, 2028. 

“While hospital associations and other provider organizations will lobby to delay the provider tax and the state direct payment phase-down, we just feel like organizations should really prepare as though these cuts will take effect; so, a lot of planning to be done,” Andy Page, a partner for Forvis Mazars, said in a recent podcast.  

Separate from budget reconciliation efforts, Republicans are launching the regular FY26 budget process and using President Donald Trump’s budget as a starting point, according to published reports. The Trump budget proposed shrinking and restructuring HHS. It would cut the department’s budget by 25%, or $31.6 billion, and roll the Health Resources and Services Administration (HRSA)and other agencies into a new Administration for a Healthy America (AHA).

“Your legislation strikes these two sections to mitigate the impact of Medicaid reductions on hospitals and health systems and allow them to continue to serve their patients and communities,” AHA said today in a letter to Hawley expressing support for the Senator’s  legislation.

Hawley’s bill also would double funding for the Rural Health Transformation Fund from $50 billion to $100 billion and extend the duration of the fund from five to 10 years. The Rural Health Transformation Fund was established as part of the OBBBA.

Meanwhile, separate legislation HR 4384 and S 2244 from Sen. Rand Paul (R-Kentucky) and Rep. Greg Steube (R-Fla.) would accelerate implementation one of the law’s provisions regarding undocumented immigrants and Medicaid.