Hospitals facing major policy headwinds won’t be able to sustain operations through cost cutting or revenue protections alone, and they shouldn’t bank on immediate political relief following this week’s midterm results, BRG policy and health system operations consultants warn.
Health systems across the country have been gearing up for the years-long rollout of Medicare and Medicaid policy changes from 2025’s H.R. 1, whose standout changes, such as Medicaid work requirements and state-directed payment restrictions, will begin in earnest on Jan. 1. The implementation is expected to reduce the number of patients with coverage and limit supplemental payments to providers, compounding challenges they’re already facing this year after expired Affordable Care Act subsidies pushed many patients off marketplace coverage.
“I’m generally an optimist as [my] personality, but the quote that comes to me is ‘It can never be so bad that it can’t get worse,” David Wildebrandt, a managing director in BRG’s healthcare practice, said during a Thursday media roundtable on federal policy takeaways for healthcare providers. “It’s really very troubling, the cumulative toll of everything that’s happening, because health systems have an incredibly difficult ecosystem in general in terms of capacity constraints, payer mix, softer volumes.”
Those headwinds will land amid a midterm election in which healthcare issues are top items for voters. Reversing or hobbling H.R. 1 has emerged as a priority for Democratic candidates and party leaders, promises that would have no small impact on hospitals hoping for a financial lifeline.
“I do think the biggest ticket item here for the next couple of years is how One Big Beautiful Bill Act implementation goes, how states respond and whether or not Congress tries to have a say by potentially trying to amend that bill in the first couple of years,” John Barkett, managing director in BRG’s Healthcare Transactions and Strategy practice, and formerly an advisor on the White House Domestic Policy Council, said. “It's not uncommon for big bills, including Obamacare or Medicare or any other big bill, to be amended within a couple of years of passage.”
In a scenario where Democrats take both the House (currently considered very likely by pollsters) and the Senate (more of a toss-up), BRG’s healthcare practice advisors said they anticipate a slew of new congressional oversight and investigations in health agencies and some of the organizations they’d cut deals with in recent years. And even if they can’t get a partisan health bill signed into law, there’s still room to write and pass bills that could become new policy in a future majority, as was the case with Medicaid work requirements pushed by Republicans during the end of the Biden administration but ultimately codified last year.
As for the OBBBA, the BRG consultants acknowledged that revisions to the sweeping Medicaid changes are possible, but pointed out the steep hill they’d need to climb.
“President Trump will still be president, and he will view a policy that amends the One Big Beautiful Bill Act in favor of hospitals as a concession to Democrats—and therefore, he’ll be looking for something in return,” Barkett said. “And so the question will be, how big is the ask for what the Trump administration would want in return for amending a signature law, … and what he’s asking for would have to be palatable for Democrats. And that’s where I think there’s a lot of uncertainty right now.”
“Providers shouldn’t really plan on relief coming from Washington in that way,” Dave Brueggeman, another managing director in BRG’s healthcare practice, said of an OBBBA amendment and a potential swift return of marketplace subsidies.
Barkett noted that second-term, lame duck presidents tend to look at their legacy as lawmaking grinds to a halt. That could make Trump and his administration “even more emboldened to take action through [Centers for Medicare and Medicaid] rulemaking,” he said.
“The question I’m thinking about is, what signals is the president giving about what he wants his legacy to be on healthcare in the last couple of years,” he said. “I’m not sure that anyone who’s saying they know what that is necessarily has the mind of the president. I think it could go in several directions, and it’s particularly interesting given that the Supreme Court … has been constricting what an executive branch can do when they’re thinking creatively about how to interpret statutes.”
Should Republicans maintain control of The Hill, Barkett said the industry should expect a continuation of the policy agenda from the past two years—reduced coverage, lower spending and deference to regulatory agencies—with “maybe some bipartisan work going on,” such as pharmacy benefit manager reforms from earlier this year.
“The bottom line here is that revenue pressure from the OBBBA isn't a one-year problem,” said Brueggeman. “It builds over the next decade, and the systems that come out of it in best shape will be the ones that start adjusting the revenue and cost strategies now.”
'Difficult' cost adjustments, 'draconian' revenue pursuit
The policy landscape is unprecedented ground for management teams that, likely for the first time in their careers, have never encountered a year in which overall health insurance coverage wasn’t increasing.
Wildebrandt's chief advice, based on best practices BRG is seeing among big names like HCA Healthcare and Tenet Healthcare, is to cut through the unknowns and develop a financial exposure plan with “very sophisticated predictions of what's going to happen with charity care, uncompensated care, the amount of uninsured, EBITDA forecasts."
“The one thing I would certainly want to impress upon everyone is it is different for every hospital. You cannot use a blanket statement,” he said of the policy impacts going into effect. Such predictions “really create[] a true north for everyone to look at. … Some of the systems that are doing that, it’s been very much an awakening event.”
The immediate next priority, Wildebrandt said, is for systems to model and protect enrollment among patients who will still be eligible for coverage after January’s work requirements implementation deadline, for instance by “standing up outreach centers to help with the documentation and the education of the work requirements.” Brueggeman similarly raised red flags over yet-to-be-shared state guidance on how the changes could impact Medicaid presumptive eligibility, and noted that many BRG hospital clients are reviewing their collections and self-pay and charity care policies amid an expectation of increased payment difficulties.
From there, health systems will need to begin ramping up their cost optimization and strategic realignment, and likely to a greater extent than what they’ve already begun to pursue over the past year.
“What we share with our clients and folks that are really getting ahead of this is another 5% to 7% of cost reduction on top of what they're already doing,” he said. “And that really gets you into deeper areas beyond labor, beyond supply chain. What we're working on mostly is a transformational roadmap.”
The chief opportunities here, he said, involve integrated care models and leaning into many of the skills systems developed under risk-based arrangements to direct patients to community providers or other lower-cost settings when possible.
“We’ll likely see an explosion of growth in partnerships with FQHCs and other community organizations to get folks into the right care setting and reduce unnecessary utilization,” he said. “And another important area, one we’ve honestly given some lip service to over time, is partnering to expand ambulatory access and, again, reduce preventable hospital use.”
Wildebrandt described these efforts as requiring “structural changes” addressing “fixed costs, and not just working into variable costs.” That means taking a hard look at what’s currently on offer.
“We see many organizations assessing their portfolio, looking at service rationalization—especially big systems that have integrated and have redundant OB units within the same perimeter,” he said. “You'll see more Centers of Excellence coming out of this, which will decrease access, but consolidating services, OB, pediatric intensive care units, and other non-core programs like post-acute rehab. … You’re seeing folks also spinning things off, spinning hospitals off, spinning service lines off. So definitely a lot of activity in this space.”
Leaders from major nonprofit health systems who were on the panel agreed. Matt Brown, president of CommonSpirit Health’s South Region, said it’s become more routine to hear of cost-conscious systems targeting stiffer benchmarks for their labor spending—salary, wages and benefits expenses below 45% of patient service revenue, “when 15 years ago under 60% was appropriate."
He and Gail Kosyla, chief financial officer at AtlantiCare, also acknowledged that nonprofits are already weighing options on service lines that are losing money for the system, noting that providers could mitigate the impact on patient access by partnering with another community provider already offering the same services.
“Those are difficult decisions, and they really go to patient need, community need, as well as that financial component,” Kosyla said during the roundtable.
With the scope of headwinds to come, panelists agreed that cost management alone won't close the gap without corresponding efforts to protect revenue.
Brueggeman said his team has been working “every day” on an “explosive growth” in termination planning, as providers negotiating new network agreements with payers are increasingly willing to play chicken in order to maximize revenue. Should those disputes come to a head, a hospital’s network exit could mean reduced access to care for local patients.
Brueggeman noted that the contentious negotiations have recently lost a natural common ground. Risk-based arrangements with shared upsides and downsides have become less appealing to providers due to a “lack of ability to specifically predict what those outcomes would look like” with the policy changes, he said. “That creates a significant tension against what was, at one time, considered an outlet in these negotiations of creating a shared responsibility around risk. It's creating a little bit of a dam in that process.”
CommonSpirit’s Brown was up front about the need to go toe-to-toe, and the benefits for doing so.
“We’re doing everything we can with payers to understand how we maximize our reimbursement,” he said. “That means draconian things at times. We’ve had markets go out of network with Medicare Advantage providers. And we’ve gotten back in recently—specifically a community in Texas. We went out for a while, and then came back in as a national player.”
“We have to do everything we can to leverage our scale in negotiations with payers—and with states to ensure that we don't get hit with provider fee problems in places like Kentucky, Colorado and California to the level that H.R. 1 projects,” he added.