The Health Reform Act of 2025 (HR1) has intensified financial pressures on hospitals by reducing Medicaid funding, tightening Disproportionate Share Hospital (DSH) eligibility, and narrowing access to the 340B Drug Pricing Program. These changes challenge longstanding business models and require leaders to think beyond short-term budget cuts. Incremental savings will not address structural pressures. Instead, sustainability will depend on strategic transformation across access, service lines, and payer strategy.
Financial Pressures from HR1
HR1 directly reduces federal support to hospitals serving Medicaid and uninsured populations. Medicaid cuts and DSH restrictions erode revenue streams for safety-net providers, while narrower 340B eligibility limits access to discounted pharmaceuticals.(1) The combined effect accelerates margin compression across both urban and rural hospitals, many of which already face thin operating margins. Without strategic adjustment, closures may increase in underserved areas.
Access as a Strategic Growth Driver
Access must be viewed as a growth lever, not just an operational function. Centralized, digital-first scheduling and self-service platforms have been shown to reduce no-shows, fill appointment slots more efficiently, and elevate referral capture rates.(2) Broader hospital flow redesigns through standardization, digital tools, and patient-centered scheduling can enhance system-wide throughput.(3) Moreover, innovations like virtual multidisciplinary rounds have demonstrated reductions in length of stay while improving accountability and operational coordination.(4)
Service Line Evaluation: Balancing Mission and Margin
Federal program changes mean service lines with high Medicaid volume may jeopardize supplemental funding eligibility. Hospitals must evaluate contribution margin, payer mix, and alignment with community needs when deciding whether to grow, reduce, or repurpose services. Rationalization ensures resources are directed to clinically essential and financially sustainable services. For instance, a hospital might choose to shift resources away from a high-cost, low-margin cardiovascular program and reinvest in oncology services that better align with community demand and payer support.
Commercial Payer Strategy in the Era of Transparency
Price transparency rules have created unprecedented visibility into negotiated rates. Hospitals can use these data to identify under-reimbursed services and pursue targeted rebalancing, negotiating selectively for high-value specialties while holding steady in lower-priority areas.(5) This approach strengthens reimbursement in growth-focused services while preserving payer relationships. However, favorable rates only yield results if hospitals capture the associated volume, requiring systems to reduce referral leakage and align marketing with priority service lines.
Policy and Strategic Implications
HR1 signals a shift in federal priorities, reducing reliance on supplemental funding and pressuring systems to achieve sustainability through efficiency and market alignment. States may pursue waivers or new safety-net funding pools, but capacity to offset federal reductions will vary. For health systems, three imperatives emerge: broaden sustainability metrics beyond margin, engage in policy advocacy at state and federal levels, and integrate compliance with strategic planning. Without these adjustments, vulnerable populations face heightened risks of reduced access.
Conclusion
HR1 is both a challenge and an opportunity. Hospitals that continue to rely solely on cost-cutting risk eroding access and long-term viability. By reimagining access as a growth driver, rationalizing service lines, and leveraging data in commercial negotiations, health systems can build more resilient models. Strategic engagement with policymakers and evidence-based planning will be essential to balance mission and margin, ensuring hospitals remain sustainable and able to serve their communities.
References
Text - H.R.1 - 119th Congress (2025-2026): One Big Beautiful Bill Act. Congress.gov. July 4, 2025. https://www.congress.gov/bill/119th-congress/house-bill/1/text .
Betancor PK, Boehringer D, Jordan J, et al. Efficient patient care in the digital age: impact of online appointment scheduling in a medical practice and a university hospital on the ‘no-show’ rate. Frontiers in Digital Health. 2025; 7. https://doi.org/10.3389/fdgth.2025.1567397 .
Åhlin P, Almström P, Wänström C. Solutions for improved hospital-wide patient flows: a qualitative interview study of leading healthcare providers. BMC Health Services Research. 2023; 23(17). https://doi.org/10.1186/s12913-022-09015-w .
The Joint Commission. Virtual multidisciplinary rounds reduce length of stay and improve throughput. The Joint Commission. August 22, 2023. https://www.jointcommission.org/en-us/knowledge-library/news/2023-08-virtual-multidisciplinary-rounds-reduce-length-of-stay-and--improve-throughput . Accessed September 5, 2025.
DeFreitas M. How to collaborate with payers in 2025: advice from HFMA. HealthLeaders. July 7, 2025. https://www.healthleadersmedia.com/cfo/how-collaborate-payers-2025-advice-hfma . Accessed September 5, 2025.