Hospitals on the Edge: A Time for CMS to Do No Harm
Congress cut federal Medicaid spending by almost a trillion dollars last summer, enacting H.R. 1—the One Big Beautiful Bill Act. The Centers for Medicare & Medicaid Services' job now is to implement that law, not cut even deeper than Congress intended. That would trigger a race to the bottom for hospitals and the patients who depend on them.
KFF, drawing on Congressional Budget Office (CBO) estimates, puts the law’s 10-year Medicaid cut at roughly $911 billion. CBO projects it will also swell the number of uninsured by 10 million people by 2034, including 7.5 million from the Medicaid provisions alone—a double blow to patients and the hospitals that treat them.
Those cuts are already law. H.R. 1 doesn’t cap CMS' general Medicare authority, but it sets an explicit statutory boundary on the Medicaid payments Congress chose to restrict. In rule after rule this year, CMS is proposing to cross it.
Since April, CMS has issued four major proposed rules touching inpatient hospitals, outpatient care, physician services and Medicaid payments. Some provisions simply implement what Congress enacted; others are the agency's own policy choices layered on top. Hospitals don’t get to sort them by category—they land on the same balance sheet, just as H.R. 1's coverage losses start to bite.
Here’s where CMS is going further than Congress asked:
The fiscal year 2027 inpatient rule raises base payment rates 2.4% and projects a $1.4 billion net increase overall. But combined Medicare disproportionate-share and uncompensated-care payments, which help offset care for low-income patients, would fall $564 million, even as CMS estimates a climbing uninsured rate, from 8.7% to 9.1%. A national increase can still hide real damage to hospitals caring for a rising number of uninsured patients.
The calendar year 2027 outpatient rule would pay for 340B drugs at the average sales price (ASP) minus 33.4%, down from ASP plus 6%. The cut is offset by an 8.44% budget-neutral bump to other outpatient rates. That’s a redistribution, not a system-wide cut—but CMS itself admits that for most 340B hospitals, the drug-payment loss will outweigh the gain.
The same rule accelerates a separate 340B remedy offset, raising the annual clawback from 0.5% to 3%, compressing recovery from 2041 to 2029, and cutting 2027 payments by an estimated $2.3 billion. The Supreme Court ruled unanimously in American Hospital Association v. Becerra (2022) that HHS’ original 340B cuts were unlawful because the agency skipped the acquisition-cost survey the law requires. Hospitals didn’t create that unlawful policy, and they shouldn’t have to absorb an accelerated bill for CMS' own mistake.
The rule also extends site-neutral payment to certain imaging done in off-campus hospital departments, worth an estimated $260 million in year one. It sounds technical, but nothing in H.R. 1 requires it. CMS should weigh the readiness and access burden before finalizing a cut that Congress never voted for.
The Physician fee proposal deserves a different read. Its conversion-factor cuts –1.19% for qualifying alternative-payment-model participants, 1.68% for everyone else—mostly reflect the expiration of a temporary 2.5% boost Congress enacted for 2026. That’s real pressure on physicians, but not CMS exceeding H.R. 1.
The clearest overreach is the Medicaid state-directed-payment proposal. Congress capped these payments in four categories: inpatient hospital, outpatient hospital, nursing-facility and academic-medical-center practitioner services. The CBO was explicit that other services weren’t touched. Yet, CMS is proposing to extend Medicare-based caps to all services by 2029, restrict practitioner payments and end most uniform-increase deals—steps it calls its own “additional policy changes.” CBO scored Congress’ actual provision at $149.4 billion in savings; CMS pegs its full proposal at $510 billion—more than three times what Congress enacted. That gap is the difference between implementing a statute and rewriting one.
New Jersey shows what’s at stake. The state projected $4.6 billion in hospital state-directed payments for state fiscal year 2026 across three programs: the County Option Hospital Fee Program, outpatient supplements and QIP-NJ, which ties payment to performance. State officials estimate that H.R. 1 alone will drive New Jersey's annual losses to roughly $2.8 billion by fiscal year 2032.CMS should not pile its own restrictions onto services Congress deliberately left alone.
These four rules aren’t all net cuts—some raise aggregate payments, some redistribute them, some just implement Congress' direction. But distribution is the pain point: A budget-neutral policy can still devastate the hospitals treating the most low-income and uninsured patients. Nearly half of rural hospitals already operated at a loss in 2023, per the American Hospital Association, even as community hospitals nationwide support 25.9 million jobs and $4.8 trillion in economic activity. They have the least room to absorb an agency doing more than Congress required.
CMS should revisit the disproportionate share and uncompensated-care cut, drop the accelerated 340B remedy offset, reconsider the site-neutral imaging expansion and confine its Medicaid restrictions to the categories Congress actually specified. Two of these four rules are already closed to comment; the windows on the outpatient rule (through Aug. 31) and the physician fee schedule (through Sept. 14) remain open, and CMS has no excuse not to fix what commenters flag. Congress should ask CMS directly why its Medicaid proposal claims more than three times what lawmakers actually cut—and members should ask what it means for hospitals back home.
Hospitals are already bracing to absorb one historic round of federal cuts. CMS should implement the law Congress wrote—not turn it into a floor for cuts Congress never enacted.