Hospital margins tighten

In July, President Donald Trump signed the One Big Beautiful Bill Act (OBBBA), which includes almost $1 trillion in cuts to federal healthcare programs. According to an estimate from KFF, OBBBA includes at least $940 billion in Medicaid cuts, and according to a separate analysis from the Congressional Budget Office, the law will lead to almost 12 million people becoming uninsured by 2034.

The law also imposes work requirements for adults ages 19 to 64 who do not have disabilities or dependents, with beneficiaries having to document at least 80 hours a month of work or other qualifying activities. These requirements will take effect no later than the end of this year.

In addition, the law bans new state provider taxes and reduces existing taxes from 6% of a provider's net patient revenue to 3.5% over several years.

Compounding this, health systems have said they're seeing fewer patients who are losing health coverage transition to Medicaid. Historically, patients who lose coverage from the Affordable Care Act (ACA) exchange or lack employer-sponsored insurance typically transition to Medicaid if they qualify, but according to several health system executives, that pipeline seems to be narrowing.

 To improve their margins, Providence is reducing length of stay by improving diagnostic test and patient discharge processes, Wexler said. The health system is also advancing lower-cost, preventive care with centralized scheduling to reduce appointment wait times for primary care, implementing technology in care delivery to minimize administrative burden for employees, and expanding partnerships.

"All of this is adding up to … improved performance that we saw in the second half of 2025 that is continuing to take hold in 2026," Wexler said.

Kevin Mahoney, CEO of the University of Pennsylvania Health System, said he estimates OBBBA changes will cost his system $382 million over 10 years. As a result, the health system is investing in its hospital-at-home program, ambulatory surgery centers, and other outpatient facilities, as well as leaning into virtual care and artificial intelligence tools, Mahoney said.

Ultimately, the goal is to redirect care delivery to lower-cost settings before the changes within OBBBA take effect.

"I don't want '-ing' words. I don't want, 'We're working on it.' 'We're talking about it,'" Mahoney said. "I wanted completed, executed, in place. I'm trying to create that sense of urgency."

Meanwhile, Tampa General Hospital has been leaning into its "3 in 30" initiative amid looming funding cuts, an initiative it launched in 2024 and is looking to add three points to its pre-tax earnings margin in 30 months.

"It's ambitious, but you have to be ambitious in this industry," said president and CEO John Couris. "We're heading into some really uncertain times, and as one of my executives said to me, these aren't sands shifting beneath our feet anymore. These are tectonic plates that are starting to realign."