Up to 650 layoffs at Vanderbilt University Medical Center (VUMC) in Tennessee. More than 200 positions eliminated at UC San Diego Health. A hiring pause at Dartmouth Health in New Hampshire.
Those are among the ways that health-related budget cuts planned or enacted by the White House and Congress this year are affecting academic health systems (AHSs) — with the biggest fallout coming from the termination of more than 1,100 grants from the National Institutes of Health to hospitals and medical schools, and a predicted $1 trillion in payment reductions through Medicaid and other programs under the recently signed budget law known as the One Big Beautiful Bill Act (OBBBA).
The law will result in an increase of about 10 million uninsured people by 2034, most of whom would have been covered by Medicaid and the Affordable Care Act (ACA), according to a Congressional Budget Office analysis. Hospital administrators expect that millions of those patients will shift from being covered under Medicaid to receiving uncompensated care at their facilities, much of which will be the responsibility of AHSs: They account for 29% of Medicaid inpatient days and 33% of uncompensated care costs, according to a 2024 AAMC analysis.
The federal reductions come at a time when many AHSs are facing economic challenges that compel budget reductions. The combination of business and government forces is pushing more AHSs to explore an array of strategies. These include staff reductions, reorganizing to improve efficiency and expand services that generate income, working with state agencies and legislators to find alternative sources of funding and to broaden who is eligible for Medicaid, and helping patients meet more stringent Medicaid requirements.
“What we’re looking at is, ‘How do we transform?’” in the wake of the spending reductions and rule changes, says Michael Waldrum, MD, MSc, CEO of ECU Health in North Carolina, the primary teaching health system for East Carolina University’s Brody School of Medicine, and chair-elect of the AAMC Board of Directors. “We’ve known that all of this was coming, so we’ve been in the process of transforming service delivery.”
Among the major OBBBA provisions that are expected to reduce Medicaid and ACA enrollment and funding:
- Reducing state-directed payments, which states utilize to require Medicaid-managed care organizations to provide increased reimbursement to different types of providers, including hospitals.
- Limiting states’ tools for financing the nonfederal share of Medicaid spending, by reducing provider taxes: that is, the taxes that states charge health care providers. States use those funds to draw down federal Medicaid matching funds. The current cap of 6% on patient revenue declines in steps, to 3.5% by fiscal 2032.
- New work requirements for many recipients.
- More frequent eligibility reporting requirements for recipients, and stricter rules for proof of identity and citizenship.
Health leaders say the work and reporting requirements will drive millions of eligible patients off the Medicaid rolls because of administrative red tape and bureaucratic errors or difficulty meeting documentation deadlines. Many people will delay or go without needed health care.
Rural areas are expected to be especially hard hit. “Rural communities are disproportionately poorer, sicker, and older than their urban counterparts,” with a larger proportion of rural patients relying on Medicaid, says Brock Slabach, MPH, chief operations officer of the National Rural Health Association (NRHA).
Calculating the impact isn’t easy
Hospitals began planning or instituting cost-cutting and cost-saving measures early this year, as the new Trump administration began proposing or enacting reductions in various areas of medical funding.
“In February we started trying to understand the potential impact on both the state and federal levels of absolutely everything that had been discussed,” says Dennis Murphy, MHA, CEO of Indiana University Health (IU Health).
Several factors complicate the calculations about the impact of the Medicaid and ACA changes on specific institutions, including that (1) Medicaid is funded jointly by the state and federal governments, with states having significant leeway in how they implement it; (2) the state and federal governments have a lot of decisions to make about how to carry out the OBBBA, such as the development of processes and regulations; and (3) the changes are slated to be instituted in stages through at least 2034, which means that impacts (and perhaps some of the law’s provisions) will evolve over the next decade.
In Indiana, for example, health leaders have estimated that hospitals will lose about $12 billion in Medicaid funds over the next decade, as the OBBBA stands now — “just doing simple math,” Murphy says. With IU Health accounting for up to 30% of all Medicaid care in the state, he adds, it can expect a loss of about $3.5 billion. Still, IU Health is waiting for more specific data before it makes specific cost-cutting decisions.
One of the most significant financial burdens for hospitals will take time to be determined: the increase in uncompensated care that they provide as more patients go without Medicaid or other insurance.
“Those patients are going to show up for care here,” Murphy says. “If you don’t have insurance, you tend to come later in your disease progression or your symptom progression, because you can’t afford care, so you’re going to be sicker when you come here. You’re going to come to the most expensive, least appropriate place to get your care: the emergency room.”
As a result, many hospitals might ramp up their strategies for providing primary, nonemergency care to uninsured patients sooner, and not in the emergency department.
“I think all of us [hospital leaders] are going to look at the care models for those people and say, ‘How do we get them the right care at the right place?’” Murphy says.
Staff reductions, reorganizations
At some hospitals, however, the financial projections are specific enough now for leaders to take painful economic measures. For example, several AHSs provided written statements to AAMCNews on their responses to federal budget and spending changes this year:
VUMC made plans in March to cut its budget by $250 million because of the spending cuts, and in June raised that figure to $300 million, with a statement citing federal reductions to research funding and patient care. The hospital system reductions included layoffs of 650 staff, working primarily in research, administrative, and other support areas.
UC San Diego Health decided in June that it would eliminate about 230 positions from across its clinics and hospitals. “The difficult decision was made solely in response to mounting financial pressures caused by federal impacts to health care, regulatory uncertainty, and rising costs of providing care,” the health system’s statement said. It also cited “reimbursement rates from Medicare, Medicaid, and insurers that fail to keep pace with the true cost of care.”
Yale New Haven Health — citing “significant financial and operational challenges, including low Medicaid reimbursements" — offered voluntary retirement packages “to a variety of employees across the system.”
In addition, Dartmouth Health instituted a partial hiring pause this spring for dozens of “non-patient facing” positions in response to concerns about financial challenges, including changes in traditional revenue streams, impending Medicaid changes, loss of government funding for research, and labor and supply cost increases, says Chief Executive Officer Joanne M. Conroy, MD.
“We decided to hold [on filling positions] that are not mission critical until we know what’s going on” with federal funding, Conroy says. For now, “we’re approving only clinically facing positions.”
Whether or not a hospital has instituted staff reductions so far, the concern about what’s to come hangs in the air. At IU Health, Murphy says, staff have asked, “ ‘Am I secure? Do I have a job? Do I have the ability to feed my family and send my kids to school?’”
Mitigating the financial harms
Hospitals are trying strategies both inside their facilities and with lawmakers and regulatory agencies to dampen or offset some of the impact. They include:
Firming up Medicaid verification: Dartmouth Health is among the academic health systems that plans to intensify staff efforts to help eligible patients get and keep Medicaid coverage.
“We have to ramp up the conversations with every single beneficiary when they touch our system — asking them whether or not they believe that their documentation is up to date, whether or not their address has changed,” says Conroy, of Dartmouth Health.
A fundamental challenge is making sure the information that Medicaid has about a patient remains accurate as that patient goes through life changes.
“These are people who change addresses, change jobs, and they are not always aware of the implications of doing that on their Medicaid benefits,” Conroy notes.
Boosting income: Several hospital systems are intensifying efforts to increase efficiency by, for example, reorganizing departments and looking for potential growth areas for services that produce income.
“Just about every academic center talks about patients who started out in their primary care system, then went somewhere else for specialty care,” Murphy says. “How do you keep those [patients] who are in your system?”
Growing such services, he says, could “offset some of the economic downside of more uncompensated care.”
Working with state agencies: Because Medicaid is managed by the states, they have flexibility in how they implement the program, to meet their specific needs. Examples are designating certain optional population groups as eligible, covering certain services not required but allowed by the federal government, and setting rates of payment. Dartmouth Health is working with state agencies in New Hampshire and neighboring Vermont, where many of its patients live, on trying to maintain wide eligibility and coverage guidelines, Conroy says.
Working with elected legislators: In North Carolina, ECU Health is among the health systems whose leaders have been educating state and federal lawmakers about the impact of Medicaid cuts on health care in their region. The area covered by ECU Health includes 29 rural counties, and Waldrum says he and his staff “have been working closely with our federal legislators and state legislators to make sure they understand the implications” of the OBBBA on those communities: namely, that rural areas have greater than average medical needs and Medicaid patients but are underserved because of a dearth of health care facilities.
Health leaders hope state lawmakers can find funds to make up for some of the losses (through, for instance, state grants for rural health care). In late July, Massachusetts Gov. Maura Healey announced a plan to provide $400 million to support research projects at universities and colleges in the state, in response to funding cuts by the Trump administration.
On the federal level, efforts are underway to roll back some OBBBA cuts, as a few members of Congress who voted for the bill subsequently expressed regret over certain items.
“There is little time before the [financial] bite comes” because of the rolled-out nature of the provisions, says Slabach, of the NRHA. “We’re looking at opportunities to make changes [before] many of the unfortunate cuts go into effect.”
Rural communities — where the implications of cuts are especially severe and local elected officials are sensitive to their constituents’ needs — might stand a good chance of getting relief.
“I’m hopeful that we will be heard,” Waldrum says. “I am hopeful that there’ll be adjustments to deal with the disproportionate impact of these cuts on the environments that we serve.”
