Over the weekend, the One Big Beautiful Bill Act (OBBBA) was signed into law, resulting in nearly a $1 trillion cut to Medicaid over the next decade. Advis has summarized key provisions impacting healthcare providers both directly and indirectly below.
Congress explicitly delays enforcement of long term care staffing standards imposed by the April 2024 Final Rule to September 2034. OBBBA also delays enforcement of two other rules promulgated by the prior administration: Medicaid Program: Streamlining the Medicaid, CHIP and Basic Health Program Application, Eligibility Determination, Enrollment, and Renewal Processes and Streamlining Medicaid: Medicare Savings Program Eligibility Determination and Enrollment. The bill also implements a one-time increase to MPFS rates under the 2026 fee schedule.
In place of these regulations, the new administration imposes additional restrictions on states and providers and limits both state and provider eligibility for federal Medicaid funding through a number of mechanisms:
- Imposing Medicaid Work Requirements. To be eligible for Medicaid coverage, able-bodied adults (as early as January 2027) must now provide confirmation that they are spending at least 80 hours a month working, participating in a work program, completing community service, participating in an educational program or participating in a combination of those activities. The bill indicates that there will be exceptions made for some individuals including those under 19 years of age and individuals experiencing certain short-term hardship events.
- Reducing Medicaid Eligibility based on Legal Status. Beginning October 1, 2026, Medicaid payments will only be made for residents of the U.S. state/D.C./territory AND a U.S. citizen/national, lawfully admitted permanent resident (excluding temporary visitors), Cuban/Haitian entrant, or lawfully residing under a Compact of Free Association.
- Requiring More Frequent Eligibility Determinations. Beginning December 2026, states will need to make eligibility redeterminations every 6 months. Additionally, states will also be instructed to review and disenroll deceased individuals on a quarterly basis. The OBBBA also instructs HHS to establish a multi-state enrollment prevention system by October 2029.
- Restructuring Medicare Provider Tax Collection and Distribution. OBBBA creates a more restrictive environment for Medicaid provider taxes by lowering the “safe harbor” threshold for expansion states over time. This will force states to reduce existing provider taxes or find alternative funding for their Medicaid programs. For non-expansion states the provision locks in existing tax levels and prevents new taxes from leveraging the old “safe harbor” provision.
- Modifying Federal Medical Assistance Percentages (FMAP). Beginning October 1, 2026, the FMAP for payments for emergency medical conditions furnished to aliens (not otherwise eligible for full Medicaid) cannot exceed the standard FMAP for that state. These modifications will likely result in lower Medicaid payments to states, requiring larger contributions from the state to maintain reimbursement at current levels. The modifications in turn will result in lower payments to providers from the state.
- Initiating cost-sharing limitations. Beginning Oct. 1, 2028, states will be able to impose deductions, co-pays, or similar charges (no more than $35) for some healthcare services excluding:
- Primary care services.
- Mental health care services.
- Substance use disorder services.
- Services from FQHCs, CBHCs, or RHCs.
The total amount of cost-sharing a family pays in a quarter or month (as determined by the state) cannot exceed 5% of their family income.
- Excluding Certain of Providers Eligible for Direct Medicaid funding for a year. Nonprofit entities (including affiliates, subsidiaries, successors, and clinics) are prohibited from receiving Medicaid funding, as of the first day of the first quarter after enactment, if they are a 501(c)(3) organization primarily engaged in family planning/reproductive health and provide abortions (with some exceptions)
- Capping Medicaid State Directed Payments. The OBBBA introduces two tiers of limits for Medicaid Managed Care payment rates for services, depending on whether the state expanded under the ACA:
- States that have expanded Medicaid will be limited to paying no more than 100% of the Medicare payment rate for a service. If there’s no Medicare rate, the Medicaid State Plan rate will be used.
- States that have not fully expanded Medicaid will be limited to paying no more than 110% of the Medicare payment rate for a service.
- Modifying ACA Subsidies. OBBBA imposes a pre-enrollment eligibility requirement for premium tax credits used to subsidize the cost of coverage through ACA exchanges. It also blocks enhanced subsidies introduced with the American Rescue Plan. This will result in reduced access to care for those choosing not to enroll.
States likely will not substantiate the gap between current funding levels and reduced federal funding amounts for Medicaid. From multiple estimated between 10 and 17 million Americans are expected to become uninsured over the course of the next ten years, resulting in larger volumes of uncompensated care for hospitals and a rise in provision of acute care services. Safety-net hospitals, rural hospitals, and children’s hospitals, are most likely to be impacted
To offset some of the projected financial impact to healthcare providers, OBBBA establishes the Rural Health Transformation Program for $50 billion over the course of 5 years. CMS will be responsible for distributing the funding to the states; however, states will need to apply for the funding by December 2025. Only CMS-approved states will receive the rural health funds.
Finally, OBBBA also expands existing exclusions for orphan drugs from Medicare drug price negotiations. While CMS negotiates with manufacturers, if drug prices were to significantly drop for non-orphan drugs, it could potentially lower hospitals’ drug acquisition costs, especially for those not in the 340B drug program.
In addition to these Medicaid cuts, Medicare providers may experience up to a 4% reduction in reimbursement rates as a result of OBBBA triggering the PAYGO (Pay-As-You-Go) rule, which requires automatic across-the-board spending cuts to offset decreasing revenues where legislation increases the federal deficit. Absent future Congressional action, these cuts will recur annually, equating to approximately $490 billion in Medicare cuts from 2027 to 2034, according to the Congressional Budget Office.
Advis continues to follow separate legislative action on several impactful topics, including site neutrality, 340B, price transparency, Medicaid, etc. For more information on legislative action and the potential impact to your organization, please contact Advis.
Published July 7, 2025
