Stay ahead of disruption: Understand the financial impact of policy developments and actions to ensure sustainability

The headlines are staggering. Deep proposed funding cuts could disrupt health services across the country, and many would disproportionately impact the most vulnerable individuals. Healthcare leaders face uncertainty around the potential impacts of these proposals specifically to their organizations and the communities they serve. Despite the uncertainty, healthcare leaders can stay ahead of this disruption. To start, they should evaluate now how they believe policy changes will financially impact their organizations, plan for likely scenarios, and identify operational strategies—both foundational and emerging.  

What the proposed policy changes could mean for health systems

Health systems remain in a weakened state as operating margins nationwide have recovered to only two-thirds of 2019 levels.¹ Entering this period of uncertainty in different financial positions, health systems also will be uniquely affected by upcoming changes. Potential impacts include:  

• Health systems with a higher Medicaid payer mix face meaningful risk from reductions in Medicaid funding. Certain proposals target eligibility, federal matching funds, and disproportionate share arrangements.² Organizations in states with “trigger laws” related to Medicaid expansion may be most immediately and greatly impacted.³  
• Organizations that currently qualify for 340B drug discounts may lose this status as disproportionate share hospital (DSH) program payments fluctuate. Even if they retain this status, they will likely see erosion in reimbursement under this program based on federal policy proposals and continued manufacturer pricing restrictions.⁴
• Most organizations will be dramatically impacted by movement to site-neutral payment. However, organizations with greater volumes in hospital outpatient departments (HOPDs) will be disproportionately affected.  
• Academic enterprises are already navigating research funding cuts and proposed changes to graduate medical education (GME) programs. These changes would create second-order effects for care delivery as organizations weigh investments across clinical, teaching, and research missions.

Healthcare organizations of all types face these challenges alongside continued pressures like eroding reimbursement, a strained workforce, and renewed concern over non-labor cost inflation.

What health systems can do now to stay ahead of disruption

With limited room to breathe, executive teams should utilize a deliberate, scenario-based planning approach. It should include three key actions:

1. Take stock of relevant federal and state proposals, and develop an informed perspective on the likelihood and degree of changes  
2. Model or “stress-test” the range of financial and operational impacts specific to their organization  
3. Identify foundational and emerging strategies, and create contingency plans to stabilize margins and endure  

Scenario modeling for a $5B health system (illustrative)

In this hypothetical scenario, a $5 billion multi-hospital regional health system identifies exposure to site-neutral payment policies, reduction in Medicaid eligibility and funding, and government and manufacturer-induced erosion to 340B as their primary concerns. The leadership team conducts working sessions to align on the range of disruption introduced by specific policy proposals. In considering site-neutral payment, for example, the organization contemplates up to a 10% reduction in outpatient revenues. A sobering, clear-eyed analysis suggests the organization faces up to $500 million in margin pressures.

Margin stabilization and contingency planning (illustrative)

To counter the potential policy impacts, organizations such as the one in this example are required to rely on foundational financial performance improvement strategies as well as emerging opportunities to meet this moment. Foundational strategies often yield 5–8% margin improvement in aggregate across enhancements in workforce management, revenue cycle, the physician enterprise, consumer access, supplies and purchased services, and near to mid-term service line growth.⁵ With the potential disruption ahead, these foundational strategies are necessary but likely insufficient. Organizations will need to look to emerging opportunities, such as:

• Proliferating intelligent automation to increase productivity and efficiency. This is best suited to repetitive, rules-based business processes, including revenue cycle management workflows ranging from insurance verification to charge reconciliation.
• Adopting artificial intelligence (AI) to alleviate burdens and expand capacity for patient care.⁶  Near-term, high-impact use cases for reliable clinical applications include things like generation of discharge summaries from historical patient data.
• Scaling up care at home programs. Many organizations have initiated these programs, but they remain in early or pilot stages, representing a fraction of the addressable patient population.
• Seeking partnerships to optimize and de-risk certain assets and services. Opportunities for consideration might include joint ventures on ambulatory surgery centers or affiliations with specialized private entities to operate behavioral health hospitals.
• Pursuing other interventions that require challenging decisions around service offerings, asset mix or footprint, and strategic direction. For instance, erosion to the 340B program may force many health systems to scale back from providing oncology services if the economics become unviable. Similarly, Medicaid eligibility restrictions and other funding changes may lead to further discontinuations of maternity programs, given that 41% of births nationwide are currently financed by Medicaid.⁷ These “break-the-glass” decisions will be a part of many health systems’ contingency plans.  

Despite uncertainty, healthcare organizations can still plan and prepare

Proposed policies, should they come to fruition in part or whole, could dramatically disrupt care delivery. To stay ahead of this disruption, healthcare leaders should understand the specific impacts to their organizations and the communities they serve, preparing now the strategies they may need to deploy for ongoing sustainability.  

Sources

¹ Moody’s, “Not-For-Profit and Public Healthcare–US Sector Profile,” August 2024. 

² Benjamin Guggenheim, “GOP budget menu outlines sweeping spending cuts,” Politico, January 17, 2025, https://subscriber.politicopro.com/article/2025/01/reconciliation-menu-reveals-wide-ranging-gop-policy-priorities-00198940.

³ Elizabeth Williams et al, “Eliminating the Medicaid Expansion Federal Match Rate: State-by-State Estimates,” KFF, February 13, 2025, https://www.kff.org/medicaid/issue-brief/eliminating-the-medicaid-expansion-federal-match-rate-state-by-state-estimates/.

⁴ Jason Abbot and Anthony Luparello, “What health systems need to know about the latest 340B manufacturer pricing restrictions,” Chartis, May 24, 2023, https://www.chartis.com/insights/what-health-systems-need-know-about-latest-340b-manufacturer-pricing-restrictions.

⁵ Chartis client experience over prior 3 years. 

⁶ Tom Kiesau et al, “AI roundtable: How AI can maximize resource deployment,” Chartis, March 5, 2024, https://www.chartis.com/insights/ai-roundtable-how-ai-can-maximize-resource-deployment.  

⁷ KFF, “Births Financed by Medicaid” (2023 data), https://www.kff.org/medicaid/state-indicator/births-financed-by-medicaid.