What ‘federal funding cuts’ really mean for US health systems (29 September 2025)

Summary

Historically, US hospitals and health systems have rarely pointed to federal policy shifts as a factor in decisions around closures, layoffs or service reductions.

That is starting to shift, with healthcare leaders increasingly linking difficult business decisions to federal funding cuts. The term encompasses several key pressures, from sweeping Medicaid reductions under the One Big Beautiful Bill Act, to the expiration of ACA subsidies and looming 340B drug pricing changes. 

Becker's Hospital Review explains five federal policy shifts that hospitals and health systems have cited as reshaping the economic landscape.

Content

1. One Big Beautiful Bill Act’s Medicaid reductions

Hospital and health system leaders across the country are already bracing for the financial impact of the One Big Beautiful Bill Act that President Donald Trump signed into law on 4 July, anticipating reductions and closures at their organisations. The legislation includes more than $911 billion in Medicaid spending reductions over 10 years, achieved through work requirements, added administrative hurdles and limits on state funding mechanisms, with the effects on hospitals and health systems varying by state.

2. Expiration of enhanced ACA subsidies

With ACA enhanced premium subsidies set to expire at the end of the year, millions could lose affordable coverage, leaving hospitals to shoulder a larger burden of uncompensated care.

3. Medicare Advantage pressures

Medicare Advantage now covers more than half of the nation’s older adults, but its rapid expansion has brought mounting tensions with hospitals and health systems. In recent years, an increasing number of providers have opted to end or not renew contracts with certain MA insurers, citing excessive prior authorisation hurdles, slow reimbursement timelines and rising administrative burdens.

Hospital leaders say these issues have moved beyond inconvenience and are now threatening financial stability. 

4. 340B Drug pricing program changes

Hospitals have long relied on savings generated from the 340B drug pricing program to offset the cost of care for low-income and uninsured patients. But recent shifts from drugmakers and HHS are putting that financial lifeline under new pressure.

In July, CMS proposed accelerating a clawback of $7.8 billion in outpatient drug payments tied to reimbursement cuts imposed on 340B hospitals between 2018 and 2022. After the Supreme Court ruled in 2022 that those cuts were unlawful and hospitals were repaid, CMS moved to offset the cost of those repayments by reducing future payments for non-drug items and services.

5. National Institutes of Health (NIH) research funding cuts

Medical schools, teaching hospitals and other research institutions are bracing for sweeping changes to reimbursements for indirect costs that support research projects. In February, the NIH said it plans to cap the amount of funding research institutions receive for indirect costs — which help cover laboratory space, equipment and other overhead expenses — at 15%. In past years, the average rate was between 27% and 28%. Research institutions have said the policy would significantly hinder research activity, limit access to clinical trials and stall scientific progress on groundbreaking treatments.