Hospitals plan for OBBB rollout

Health system executives are scrambling to prepare their organizations for numerous health policy changes recently enacted as part of the budget reconciliation law.

Hospital and health system executives are looking at a range of responses to the July 4 enactment of enacted 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.

A recent KLAS Research survey of 169 executives — mostly health system, hospital and physician practice executives — found the payment reforms are triggering reconfigurations, not just cuts. Specifically, 86% reported having contingencies in place, which include scaling back services, restructuring their workforce and expanding high-reimbursement lines.

Executives’ views on the size of impact from the legislation varied across organizations, including:

• 29% expect a major impact
• 39% expect a moderate impact
• 17% expect a minor impact
• 15% unsure of the impact

The expected impact “is all over the place but what the industry is already telling us — and I assume other partners — is that they expect at least a 3% to 5% drop in compensation for the care they provide,” said Lisa Bari, head of external affairs for Innovaccer.

A recent Deloitte survey of 32 health system CFOs and 32 from health plans found 73% reported concerns about revenue growth and operating profitability. Those included concerns about lower reimbursement rates and potential increases in uncompensated care if eligibility reductions or budget caps lead to more uninsured patients.

“The passage of the One Big Beautiful Bill Act (OBBBA) will have profound long-term implications for U.S. not-for-profit (NFP) hospitals,” Kevin Holloran, senior director for Fitch Ratings, wrote in a LinkedIn post. “The bill’s significant cuts to federal healthcare spending, particularly Medicaid, represent the greatest future threat to NFP hospital operations and cash flows. However, many of the act’s provisions affecting the sector will not be implemented until 2027 or beyond, giving hospitals time to prepare.”

Planning approach

In the near term, executives should start with understanding the size of the law’s provisions’ impacts on their organization, said Bari.

The implementation timeline for OBBB varies significantly across provisions, said Bari, and that gives organizations different preparation windows.

For the 2025 to 2026 period, Bari suggests immediate assessments of organizations’ exposure to the law’s changes should examine:

• Current Medicaid expansion enrollment by service line
• Revenue dependency on affected populations
• Geographic exposure to rural/underserved markets
• Administrative capacity for enhanced verification requirements

“You’ve got to really understand the exposure to the areas that were targeted” in the law, Bari said. “Really getting a sense of what that [impact] is. Is it 3% or is it 5%? That’s a big difference when you’re talking about a health system.”

Comprehensive organizational impact assessments should include analyzing patient population exposure, revenue dependencies and operational vulnerabilities across Medicaid expansion, ACA marketplace and rural designations, she said.

“It’s also looking a little forward and saying, ‘Is this going to change?’” Bari said. “Do you know if there are people in that marginal area who are about to be kicked off Medicaid and become uncompensated care, for example?” she said.

Next, health systems should develop scenario-based financial models, Bari said. These should model various implementation timelines and compliance scenarios. That would include best-case and worse-case scenarios for both phased and rapid implementation of the law’s provisions.

Scenario-based financial models should include multiple financial projections accounting for various implementation timelines, coverage loss scenarios and uncompensated care increases. That should account for implementation flexibilities the law allows for states.

“Your state and what’s happening in your state is really going to matter here,” Bari said.

Other early financial steps include revising financial assistance programs. That should include an actuarial analysis to balance more lenient write-off policies against organizational financial sustainability and implementing patient-friendly payment solutions without federal backfill funding.

Beyond planning

After financial forecasting and scenario planning, financial operations will need new strategic approaches, Denise Gaulin, principal for Windham Brannon, a healthcare consulting firm, wrote in a blog. Areas where action is needed include:

Optimizing revenue cycle management. With increased pressure on reimbursement, she urged accelerating claims processing, enhancing patient eligibility verification and improving point-of-service collections.

Reassessing service lines and operational footprint. She urged evaluating services to determine which are financially sustainable and strategically aligned with community needs.

Diversifying revenue streams. Gaulin said providers should reduce reliance on government payers by exploring alternative revenue sources, including employer-based direct contracting.

Operational responses to the bill “are going to be all over the place because health systems and hospitals or states have different structures and different healthcare communities,” Bari said. “So, it is hard to say that there is one answer about how this is going to go.”