Driving Sustainable Operations and Financial Strength Under H.R.1

With the passage of H.R. 1, U.S. healthcare policy enters its most consequential rewrite in more than a decade. At the center of the law are sweeping Medicaid changes: work requirements, shortened eligibility periods, reduced retroactive coverage, provider tax restructuring, state-directed payment changes, and the end of ACA tax credits, which together could upend provider revenue streams and operating models.

The Commonwealth Fund projects an 11.7 to 13.3 percent average reduction in hospital operating margins. For hospital and health system leaders, the question isn’t whether H.R.1 will impact operations, but how severely. Some systems will face existential questions while others emerge stronger.

The determining factor could be how quickly leadership teams move from analysis to action and how precisely they execute against a changed financial reality. The strategies that follow focus on how provider organizations can build the operational and financial resilience this moment demands.

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Not All Hospitals Face the Same Impact

While every healthcare organization will feel H.R.1’s effects, the degree of impact varies based on organizational profile and geographic location.

Rural providers face the gravest threat. Operating with minimal reserve capacity, they are the most vulnerable segment of the provider landscape. The possible impacts could mean service line cuts, conversion of inpatient to outpatient services, or closure entirely, and the ramifications extend beyond individual facilities. When a rural hospital closes, access to care deteriorates across the entire community, and the uncompensated care burden shifts to remaining providers in the region.

Safety-net hospitals face a similar crisis. These mission-critical providers serve populations most affected by H.R.1’s eligibility changes, creating a double burden: declining Medicaid reimbursement coupled with rising uncompensated care as patients lose coverage. Many already operate on thin margins, so coverage losses can quickly threaten community health.

Expansion states face greater exposure. Medicaid expansion states, which are home to larger Medicaid populations under the ACA, also face disproportionate financial risk. Because more beneficiaries would be subject to new work and documentation requirements, these states stand to experience greater coverage losses, sharper declines in federal funding, and deeper strain on hospital margins.

Conversely, the market is bifurcating. Some financially strong systems in non-expansion states are actually viewing this as an opportunity for strategic growth and market expansion. This creates an uneven playing field where well-positioned organizations might capture market share while others struggle to adapt to the changing Medicaid landscape.

There is a potential lifeline. The $50 billion Rural Health Transformation Program offers temporary federal funding relief for fiscal years 2026 through 2030. However, uncertainty remains about how states will distribute these awards and which providers will ultimately benefit. Rural leaders can’t rely on this relief alone; they must plan for multiple scenarios.

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Workforce Management in the New Reality

Labor costs are the largest expense category for healthcare organizations, and H.R.1 compounds existing workforce challenges around recruitment, retention, and appropriate staffing ratios.

The case mix shift presents a thorny challenge. As coverage gaps widen and patients delay care, organizations can expect emergency department volumes to increase, with patients presenting at higher acuity levels. Meanwhile, elective and semi-urgent procedures could decline as financial concerns override clinical need. This mismatch between current staffing models and emerging patient needs requires immediate attention.

Start thinking about predictive staffing. Traditional workforce management approaches like benchmarking worked hours per unit of service are insufficient. Organizations should consider predictive staffing models that account for acuity, case mix, and operational flow. By looking ahead, sometimes a week in advance, leaders can identify when providers will be in procedures versus clinics, float staff strategically, and smooth staffing to match demand.

Build cross-training capacity now. Organizations should identify underutilized resources in lower-acuity areas and retrain them for deployment to higher-need departments, particularly emergency services and critical care. This requires investment in training infrastructure now, before the full impact of H.R.1 materializes.

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Finding Quick Wins in Non-Labor Expenses

While labor costs dominate the expense equation, big opportunities exist in non-labor categories, and many deliver relatively quick returns.

Supply chain optimization can offer immediate impact. Ensuring GPO contracts have optimal tier placement and capturing all available rebates often uncovers missed opportunities. Many organizations maintain GPO relationships but fail to leverage them fully, leaving money on the table through suboptimal tiers or unclaimed rebates.

Purchased services are another opportunity. A comprehensive review of all service contracts can uncover vendor underperformance against stated service levels. Organizations that actively manage these relationships rather than operating on autopilot after contract signing can capture meaningful savings.

Pharmacy operations warrant close attention. While 340B program optimization can add value, organizations must monitor their disproportionate share hospital (DSH) percentage. Those near the 11.75% threshold face a secondary risk: as Medicaid populations decline under H.R.1, some may fall below the DSH threshold, losing 340B eligibility. This creates a potential double jeopardy: reduced Medicaid reimbursement compounded by pharmacy revenue loss.

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Scenario Planning and Financial Imperatives

Waiting for clarity about how H.R.1 will unfold is a choice that guarantees unpreparedness. The specifics may shift, but the directional impact is clear enough to model. Healthcare leaders should move beyond single-point forecasts to planning that accounts for multiple potential futures.

Build scenarios at various impact levels. Model scenarios at 2%, 4%, 6%, 8%, and 10% margin compression. The actual impact will vary based on Medicaid expansion status, current payer mix, and existing contract structures. However, understanding the range of possibilities allows organizations to develop contingency plans rather than reacting in crisis mode.

“Putting scenario plans together now and aggressively making changes only betters the organization and puts you in a position of strength versus trying to react.”

Balance your response appropriately. Roughly 60% of improvement should come from the cost side, 30% from the revenue side, and 10% from strategic growth initiatives. This distribution acknowledges that cost management alone can’t solve the problem; organizations must also think offensively about revenue optimization and strategic positioning.

Timing matters critically. Success requires moving from near-term improvement of existing relationships through mid-term strategic partnerships to long-term structural transformation, with organizations that redesign care delivery emerging stronger than those pursuing episodic cost cuts.

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Turn Urgency into Opportunity

The most critical mistake organizations can make is waiting for policy reversals or relief that may never come. Providers that begin scenario planning and proactive measures today will be ready regardless of how severely H.R.1’s impacts manifest. Those that wait risk making decisions under time pressure with fewer options.

Healthcare has faced major headwinds before, from the 2008 recession to COVID-19 and past reimbursement changes. Organizations that approach challenges with positive, collaborative mindsets will emerge stronger. This doesn’t mean ignoring reality or minimizing legitimate concerns. Rather, it means framing the situation as “time to roll up our sleeves and figure this out.”

Finally, don’t hesitate to engage expert partners when it makes sense. The rationale isn’t that internal teams lack capability—most organizations have exceptionally talented people. But those people have demanding day jobs. Expert partners can bring speed, focused attention, and proven methodologies that accelerate results. In a situation where timing matters, this acceleration can make the difference between surviving and thriving.

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