In comments, for-profit hospital leaders don’t dwell on ‘Big Beautiful Bill’ impact

Leaders of for-profit hospital chains ranged from noncommittal to confident in recent remarks about impending rollbacks to Medicaid and the Affordable Care Act (ACA).

Hospitals have several years to prepare for some of the changes, and the interval also leaves time to modify policies in the newly passed budget reconciliation bill, health system leaders said during Q2 earnings calls.

It’s possible that future legislation will mitigate some of the new law’s projected outcomes, for example, while CMS and state Medicaid programs will have a big say in how the details are applied.

“A lot of the impacts have been pushed out pretty far,” said Saum Sutaria, CEO of Tenet Healthcare. “We really don’t have any insight into how this will be implemented.”

The immediate outlook

At least for 2025, the healthcare industry climate offers reason for optimism, with HCA Healthcare raising its per-share profit forecast on the back of a 6.4% year-over-year bump in revenue for Q2. That increase broadly tracks with revenue trends in the not-for-profit hospital sector.

HCA’s growth was driven by “greater demand for our services, improved payer mix and consistent patient acuity levels,” said CEO Sam Hazen.

Tenet Healthcare raised its 2025 profit guidance, citing factors that included a 3% year-over-year increase in hospital EBITDA margin amid improvements in admissions, payer mix and cost management. The outlook accounts for cost pressures arising from possible tariff-driven price increases in supplies and pharmaceuticals.

The immediate issue that could disrupt the industry’s positive momentum is the termination of enhanced subsidies for buying ACA marketplace insurance. If the subsidies expire going into 2026 as currently scheduled, more than 2 million current enrollees would be projected to end up uninsured next year. Compared with the Medicaid cutbacks in the legislation also known as the One Big Beautiful Bill Act, hospitals would have less of a runway to mount strategic responses.

Marketplace insurance has comprised an increasingly large share of hospital business since the enhanced subsidies were introduced in 2021. At Tenet, Q2 brought year-over-year increases of 23% in marketplace admissions and 28% in associated revenues. At HCA, marketplace enrollees now represent 8% of volumes and more than 10% of revenues.

“We do anticipate that some people will lose insurance coverage over the next few years, but we believe our financial resiliency program should offset these effects,” Hazen said.

Why SDPs are consequential

Among the upcoming Medicaid changes, all future state-directed payments (SDPs) are capped at the Medicare payment rate in expansion states and 110% of the Medicare rate in non-expansion states, while starting in 2028, existing SDPs must be scaled back by 10% per year until reaching those limits. Those caps will be a significant drop-off from the currently allowed limit (the average commercial payment rate).

Still, new SDPs that were approved prior to the legislation’s enactment can be grandfathered in and retain the higher rate for the next few years. That proved to be welcome news for HCA Healthcare and Community Health Systems (CHS), both of which will benefit from a newly approved SDP for Tennessee.

CHS also received a boost from an approved SDP for New Mexico, with the organization reporting a Q2 net contribution of $75 million from the two states. The organization is hopeful about pending SDPs in Florida and Indiana, while the prospects in Alabama and Arkansas are murkier as to whether those states will obtain the higher rate, said Kevin Hammons, president and CFO (Hammons is set to become interim CEO at the end of September, replacing Tim Hingtgen, who is retiring after 17 years in the top job).

Correction: Hingtgen is retiring after more than 17 years with CHS. He has been CEO since 2021.

HCA raised its 2025 EBITDA guidance by $300 million after assessing year-to-date results, with roughly half of the increase reflecting revenue from SDPs, including Tennessee.

The guidance illustrates the importance of SDPs, but HCA’s leaders indicated they are not fretting about the upcoming changes.

“We believe the adverse [Medicaid] impacts over the next few years are manageable,” Hazen said. “This belief is based on the grandfathering provisions for supplemental programs and the timelines for phasing in work requirements and supplemental payment program changes.”

Variation among markets

Hospitals in the 10 non-expansion states will be less drastically affected by Medicaid changes than will their counterparts in expansion states. Not only will the SDP rates ultimately be 10% higher in non-expansion states, but those states also can retain provider tax rates of 6% of net patient revenue for currently enacted taxes. In expansion states, rates must be reduced to 3.5% over a five-year period starting in 2028, constricting a key Medicaid funding mechanism.

“The bifurcation of the policy between expansion and non-expansion states lessens the expected impact on HCA Healthcare,” given that roughly 60% of the organization’s Medicaid volumes and revenues are in non-expansion states, Hazen said.

CHS may not be as lucky, forecasting the SDP reductions to have a negative EBITDA impact of between $300 million and $350 million through 2038.

Similarly, the repercussions of losing the enhanced ACA subsidies could diverge across locations.

“We believe a component of people who lose [the subsidies] would go back to employer-sponsored insurance,” said Mike Marks, HCA’s executive vice president and CFO. “In our key states, especially our non-expansion states, given the job growth that we’ve seen over the last several years in places like Florida and Texas, we believe it would be a component of the story.”

Another aspect of the legislation that will vary among organizations is the $50 billion rural hospital transformation fund. The new law allocates the money to states for distribution to hospitals over a five-year period beginning in 2026, but it’s too early to gauge the prospective impact.

“There is no clear answer at this point as to how that money is going to be spent or divvied up among the rural health providers,” CHS’s Hammons said.

Some advantageous provisions

For-profit health systems also anticipate benefits from the new law, including the restoration of a prior methodology for determining interest deduction under Section 163(j) of the IRS code. Hammons said the provision, which reinstates depreciation and amortization as inputs, will help lower CHS’s annual cash taxes by between $40 million and $60 million.

HCA touted the bill’s inclusion of a clause making the 100% bonus depreciation for short-lived asset investments permanent and retroactively effective to Jan. 20 of this year.