How the OBBBA could reshape hospital finances, payer mix, and value-based care.
The 2025 budget reconciliation act, otherwise known as the “One Big Beautiful Bill Act” (OBBBA), promises sweeping changes for hospitals, payers, and patients. For many providers, the legislation lands at a precarious moment. Hospital margins, already squeezed since the pandemic, continue to face pressure from rising costs, reimbursement challenges, and shifting payer dynamics.
Indeed, the OBBBA has some big projected financial changes for all healthcare stakeholders to wrap their heads around.
PwC forecasts that the OBBBA, signed into law on July 4, 2025, will slash federal healthcare spending by approximately $1 trillion through fiscal year 2034. The legislation tightens Medicaid eligibility, introducing work requirements, more frequent documentation checks, and shorter retroactive coverage, which is expected to increase Medicaid disenrollments and leave many uninsured.
States will now shoulder heightened administrative burdens and tighter funding, as limitations are placed on provider taxes and federal matching support, PwC noted in a report on the legislation. The ending of ACA premium subsidies and DSH (Disproportionate Share Hospital) payments after 2025 could destabilize Marketplace insurance pools, potentially driving up premiums and prompting plan exits.
Hospitals, especially rural and safety-net providers, face rising uncompensated care despite a $50 billion stabilization fund.
Margin compression and workforce strain
In today’s marketplace, hospitals are being squeezed from both ends. Margins are “being challenged on both sides, revenue and costs,” said Tamyra Porter, Managing Director-Regulatory Practice Lead, Advisory Services at Premier. Supply chain volatility, rising tariffs, and inflation have driven up expenses, while reimbursement rates have not kept pace. Data, she noted, is becoming indispensable in helping hospitals find the right balance between cost and quality in their supply chains.
But the workforce crisis looms just as large. Recruiting and retaining staff remains difficult, especially with fluctuating patient volumes. Many systems have chosen not to backfill certain positions, often in nonclinical areas, just to protect margins. These cuts, however, create their own operational challenges.
Seth Edwards, Premier’s Managing Director of Strategy, Innovation, and Population Health added that revenue optimization is a growing concern. He pointed to a large Southwestern health system Premier advised, where five-year projections showed negative contribution margins across Medicare Advantage, Medicaid, and traditional Medicare. The findings forced leaders to rethink their approach, considering deeper moves into value-based contracts where managing populations could produce shared savings. “Margin compression is pushing organizations to reconsider their operating models and assumptions about risk,” Edwards said.
Thom Bales, Principal, Health Services Advisory Leader, PwC US said the OBBBA’s funding constraints are likely to push health systems to reimagine value. “As federal funding tightens, stakeholders are seeking more sustainable care delivery models – and prevention-focused care is emerging as a strategic imperative.”
Innovative models that could accelerate this shift include:
- Value-based care expansion: Bundled payments and shared savings programs will incentivize proactive population health management, especially when combined with CMS’s growing emphasis on outcomes over volume.
- Digital-first preventive platforms: Wearables, remote monitoring, and predictive analytics can preemptively detect health risks and enable interventions before illness escalates.
- Community-embedded care models: Integrating social determinants of health (SDOH) screening and support into primary care – especially in underserved areas – can prevent costly acute episodes.
“These models, supported by cross-sector collaboration and technology investments, are poised to create a more sustainable and patient-centered health system,” Bale said.
The payer mix shift
Porter and Edwards agreed that the payer mix of the future will tilt heavily toward government programs, even with the planned cuts. Medicare enrollment is projected to hit 81 million by 2030, with nearly two-thirds enrolled in Medicare Advantage. Medicaid also remains a key player, especially as states grapple with program expansions and eligibility redeterminations.
Porter pointed to CMS’s Achieving Healthcare Efficiency through Accountable Design (AHEAD) Model, an all-payer reimbursement approach modeled on Maryland’s global budget system, as an example of where things may be headed. The idea is to level-set payments across payers, reduce volatility, and promote prevention. But implementation is complex, requiring a large, risk-bearing health system to align providers under a total-cost-of-care contract. “What works in Maryland may not work everywhere,” she cautioned.
Edwards said one certainty is that CMS will continue pushing more risk onto private entities. Commercial insurers, in turn, are following Medicare’s lead. “Over the next decade, this shift will force providers to reimagine their place in the premium dollar and redefine what sustainability looks like,” he said.
Value-based care has been discussed for years, but OBBBA and federal incentive programs may finally give it some momentum. Edwards explained that hospitals working under risk contracts are finding patient-centric models to appropriately keep low- or negative-margin patients healthier outside of the hospital, which frees up resources for higher-need cases. He cited CMS’s Medicare Shared Savings Program, where 55 ACOs, who are members of Premier’s Population Health Management Collaborative, recently generated $498 million in shared savings, proof that value-based models can deliver financial and clinical benefits.
Porter emphasized how technology has changed the game compared to the early days of value-based care. Real-time analytics now allow providers to target high-risk patients, manage chronic conditions more efficiently, and build critical mass in communities. “Technology also raises questions about the best structure,” she added. “Should risk be managed at the physician-led network level, or through larger managed care organizations?”
Premier has been preparing members for these changes for more than a decade through its Population Health Management Collaborative. The initiative helps hospitals achieve sustainable success through understanding infrastructure, staffing, and technology investments required to move along the value-based care maturity curve. Unlike physician groups, hospitals must carefully balance cost savings with operational needs, making the transition especially complex.
Medicaid and the uninsured
With OBBBA and the pending changes to Medicaid and ACA tax incentives, the future of coverage remains uncertain. Porter explained that policymakers are reexamining Medicaid’s role, questioning whether expansions are sustainable and how best to align eligibility across welfare programs.
Some argue the program should act as a “trampoline rather than a hammock,” she said, providing temporary support during hardship while encouraging independence. That philosophy is driving proposals for work requirements, stricter eligibility checks, and better coordination with programs like SNAP.
Porter also highlighted the need to address the “benefits cliff,” where individuals risk losing all assistance if they earn slightly more income. Sliding-scale, asset-based approaches to eligibility as well as models like the ABLE Act, which encourages disabled communities and families to save without risk to benefit losses, could help households build stability without penalty.
In the near term, hospitals may need to prepare for higher levels of uncompensated care if coverage shifts occur, while streamlining enrollment support to keep eligible patients insured.
Bales said the growing instability in ACA Marketplace participation – exacerbated by subsidy expirations – has revived interest in regional and collaborative insurance models, particularly for vulnerable populations. He is seeing traction in:
- Public-private coalitions: Municipalities and health systems are exploring regional coverage pools or subsidized plans that blend public funding with private administration.
- Health system-backed plans: Some providers are launching their own insurance arms to directly manage risk and provide continuity of care for underserved groups.
- Community-based risk pools: These models allow small employers, nonprofits, or local governments to aggregate purchasing power and reduce premiums.
“These alternatives may gain urgency if ACA gaps widen, particularly in geographies with limited Marketplace competition,” Bale said.
Preparing for the future
As hospitals brace for the ripple effects of OBBBA, Porter urged leaders to take a proactive approach. “The first step is modeling your margin forecast; don’t be caught flat-footed,” she said. Hospitals will need to examine every operational lever, including supply chain, revenue cycle, workforce, and length of stay, to build resilience.
Some may need to make difficult choices, such as delaying facility expansions or scaling back service lines if they are financially unsustainable. “These tough decisions are part of preparing for long-term financial stability,” Porter noted.
Edwards agreed, underscoring the importance of embracing value-based models as both a financial and clinical strategy. With payer mixes increasingly dominated by Medicare and Medicaid, and federal policy shifting more risk downstream, providers that adapt early will be better positioned for sustainability.
Beyond cost controls, the OBBBA may serve as a catalyst for systemic transformation in several key ways. “With margins tightening, payers and providers are increasingly motivated to accelerate adoption of value-based care models that reward outcomes rather than procedures,” Bale said. At the same time, domestic production incentives could help modernize the supply chain by driving greater transparency, resilience, and diversification across pharmaceutical and medtech sectors.
The bill may also nudge both public and private actors to integrate health equity as a business and compliance imperative, particularly as marginalized populations continue to face disproportionate coverage and access challenges.
Additionally, smaller and rural providers may feel pressure to consolidate, pursuing strategic partnerships or mergers to remain viable amid shrinking drug revenue and rising compliance burdens. “In essence, the OBBBA is likely to act as a forcing function – pushing stakeholders to reassess business models, delivery systems, and value creation strategies,” Bale said.
The OBBBA is more than just another piece of federal legislation. It is a signal that the economics of healthcare are shifting dramatically. Hospitals and health systems will face heightened pressures on margins, a payer mix dominated by public programs, and accelerated expectations to deliver care under value-based and risk-based contracts.
For leaders, the takeaway is clear: prepare now, invest in data-driven decision-making, and consider how to thrive in a system where financial sustainability is tied to keeping populations healthy.
“Healthcare is largely driven by incentives,” Edwards concluded. “With OBBBA, those incentives are changing. The organizations that lean into value-based care and proactively adapt will be the ones positioned for long-term success.”
The OBBBA and reshoring
The OBBBA’s provision for full expensing of domestic R&D and manufacturing costs signals a broader industrial policy shift, Bale said. While it directly targets pharmaceutical supply chains, it also opens the door for reshoring across emerging medtech sectors, including:
- Digital Therapeutics and Diagnostics: Startups and scale-ups in digital health may find the tax incentives compelling enough to build or expand U.S.-based manufacturing and research operations.
- Precision Medicine Platforms: Companies developing AI-driven diagnostics or genomics tools may choose to localize advanced manufacturing to capitalize on these tax benefits.
- Medical Device Manufacturing: Especially for high-margin, low-volume devices where domestic production offers both tax and supply chain resilience advantages.
This could catalyze a “Made-in-America” renaissance in health innovation, strengthening domestic capabilities and reducing reliance on foreign sources for critical technologies.