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    One Big Beautiful Bill: What It Means For Your Health System

    There’s been a lot of focus on the macro impact of President Trump’s OBBB. We developed a tool to help executives calculate the impact on their health systems.

    Ran Strul, Nick Karzmer, Zoe Kreutzer, and Shannon Padayachy

    5 min read

    Table of Contents

      Most of the attention on the One Big Beautiful Bill has focused on broad implications for the healthcare industry and providers at large. There’s been relatively little analysis of the financial impacts at the individual health system level. We aim to fill that gap by modeling the OBBB’s effects on health systems.

      Our approach considers several factors including the diverse starting points of different states, a health system’s payer mix, a system’s underlying cost structure and the dynamics between fixed and variable operating costs. By doing so, we provide a view of how the law’s provisions translate into financial realities on the ground. Importantly, we lay out a set of strategic responses health systems can use to navigate the OBBB and bolster their financial and operational resilience.

      Understanding variable and fixed costs

      Like any business, health systems incur fixed and variable costs. Fixed costs — such as facility maintenance, salaried staff, and equipment leases — remain constant regardless of patient volume. Variable costs — like medical supplies and hourly wages — fluctuate with the number of patients treated. As volume increases, variable costs rise proportionally, but fixed costs are spread over more units, improving profitability. Conversely, when volume decreases, the health system will only save variable costs; fixed costs stay the same, squeezing income and margins.

      Research from KFF, the Congressional Budget Office, and elsewhere predicts that the OBBB will raise cost sharing and increase the number of uninsured. It’s reasonable to expect that utilization will drop, too. And while costs may fall, they won’t drop in proportion to lost revenue, exacerbating financial challenges for health systems nationwide.

      Calculating the impact of the OBBB

      To estimate the OBBB’s impact on a health system’s bottom line we grouped the provisions into three levers that would reduce operating margin:

      Lever 1 – Coverage Loss from Medicaid and ACA Contraction: As noted above, changes in Medicaid eligibility, including work requirements and increased redeterminations, combined with adjustments to the Affordable Care Act — reduced premium tax credit eligibility, limiting coverage for immigrants — are expected to increase the uninsured population. This will impact the volume and profile of care these newly uninsured individuals will use in two key areas. We expect uncompensated emergency care volumes to be sustained or to increase. We also anticipate a significant reduction in preventative and elective care, leading to commensurate declines in revenue and variable costs. Note the optional toggle at bottom of the calculator to estimate 340B status loss in case share of Medicaid patients will fall below disproportionate share (DSH) threshold. 

      Lever 2 – Utilization Reduction Due to Medicaid Cost Sharing: Cost sharing requirements on non-exempt services for expansion adults will suppress utilization, reducing revenues and associated variable costs.

      Lever 3 – Medicaid Reimbursement Reduction from Restrictions on State Directed Payments (SDPs): A cap on state directed payments for inpatient hospital services — 100%/110% of Medicare for expansion/non-expansion states, respectively — will result in lower reimbursement for services provided, without a corresponding reduction in cost. This calculator enables users to plug in data specific to their hospital or health system. The output provides a glimpse into the potential impact on their bottom line.

      Key assumptions included in the calculator logic:

      1. State-by-state response: The biggest unknown is how states will react in terms of implementation timing, and bridging the funding gap from current levels. We assume full implementation of all provisions and no incremental funding provided by the state.
      2. OBBB impacts only: We are not modelling other legislation impacts that were already planned such as expiration of enhanced ACA subsidies.
      3. No backfill: Utilization reductions and corresponding revenue and variable cost changes do not account for potential backfill of services by other insured populations.

      The model excludes financial impact related to some provisions given their impact was either too minor or too speculative to be modeled accurately at this time. Those include:
      1. Increases in revenue from a one-time 2.5% bump in the Medicare physician fee schedule conversion factor. This has been excluded seeing as the bump is for the fiscal year 2026 only and is unlikely to have a largely material impact on provider financials.
      2. Increases in revenue from the rural hospital fund. This impact was excluded given the distribution method of such funds is largely still unclear and receiving the grant funding is not guaranteed..
      3. Reductions in cost from lowered provider tax rates. This impact was excluded seeing as the related provision does not directly alter current state tax levels, and any implied state-made adjustment to provider tax rates would be highly speculative.

      Strategic Responses for Health Systems

      The OBBB will compel every health system to proactively address significant financial pressures. We’ve identified several archetypal strategic approaches that health systems can begin to consider. In practice, responses will be nuanced and often involve a combination of these strategies, tailored to each system’s current operational state, as well as local regulatory and market dynamics.

      1. Go on Defense

      Objective: Aggressively reduce costs by trimming low-margin care operations.

      Tactical Examples:

      • Partnering, contracting out, or discontinuing low-margin services
      • Consolidating or closing underutilized care sites
      • Driving operational efficiencies in both clinical and administrative functions, leveraging technology where appropriate

      Caution: Narrowing the scope of care delivery tends to reduce revenues faster than overheads, increasing the relative burden of fixed costs. Systems should also be clear-eyed regarding the potential savings remaining after years of efficiency-targeted efforts. Moreover, service reductions often disproportionately affect vulnerable patient populations, potentially conflicting with the system’s mission to serve community needs.

      2. Go on Offense

      Objective: Expand commercial market volume by attracting new patients and increasing retention of existing ones.

      Tactical Examples:

      • Developing specialized services tailored to commercial payers like sports medicine
      • Strategically expanding care locations to improve accessibility
      • Enhancing care continuity to improve patient experience and loyalty

      Caution: Given demographic trends, commercial volume growth is often a zero-sum game, with competing systems vying for a fixed or shrinking patient pool. While pursuing commercial growth, systems must remain vigilant in addressing the healthcare needs of the broader community.

      3. Go Bigger

      Objective: Pursue mergers and acquisitions to realize the benefits of larger scale.

      Tactical Examples:

      • Tuck-in acquisitions of local providers
      • Larger health system acquisitions or cross-market mergers

      Caution: Major M&A transactions are inherently complex, carry considerable risk, and often require extended timelines before value realization. Strategic due diligence and integration planning are critical.

      4. Rethink Reimbursement

      Objective: Transition some care delivery and reimbursement models from volume-based to value-based paradigms.

      Tactical Examples:

      • Engaging in downside risk and full-risk contracting arrangements
      • Forming joint ventures with health insurers
      • Building or buying population health and provider enablement capabilities

      Caution: Many systems struggle to operate simultaneously in volume- and value-based environments due to the fundamentally different capabilities and organizational mindsets required.

      5. Diversify

      Objective: Develop new revenue streams independent of traditional insurance-based claims.

      Tactical Examples:

      • Direct-to-employer contracting
      • Consumer-directed care models
      • Expanding pharmacy services and adjacent lifestyle businesses
      • Services benefiting from societies aging e.g., health tech and support services

      Caution: These ventures often require significant investment and organizational focus, as they represent distinct business models outside core health system competencies.

      The results of our modelling show the significant financial impact of the OBBB on health systems, requiring a comprehensive response. We anticipate that some community-oriented systems will reach a crossroads in the not-to-distant future: Can they continue to serve all comers? Should the organization re-pivot itself and focus on the sustainable patient segments only? Will a for-profit conversion end up strengthening the financial foundation? These would be difficult discussions, challenging the bedrock of community service ethos. But for some, it may be the only path to remain viable.

      Dan Shellenbarger, Aditya Lingampally, and Natasha Smith also contributed to this article.

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