Medicaid Cuts Hit Pennsylvania Hard, Up To 14 Hospitals Predicted To Close

Hospitals are struggling nationwide, but the situation is especially dire in Pennsylvania, where facilities are disproportionately dependent on shrinking federal healthcare funding.

After 25 shuttered statewide over the past decade, a new Hospital and Healthsystem Association of Pennsylvania report last month found that 37% of the commonwealth’s hospitals are operating at a loss. It predicted that another 12 to 14 will close in the next five years.

To combat the closures, elected officials at the state and federal level are targeting financial deals they say harm hospital systems, including private equity acquisitions and sale-leasebacks with REITs. If more hospitals close, it will likely have an impact on the surrounding real estate market.

“We know that in order to have communities where businesses want to come to, where families can grow and live, we need to have strong hospitals,” HAP Vice President of Strategic Communications Liam Migdail said.

“This is not a hospital issue. This is a community issue.”

Rural and urban safety-net hospitals — which disproportionately provide care to low-income communities and tend to be most dependent on Medicaid — are struggling the most in this climate, he said.

Pennsylvania hospitals only get reimbursed 71 cents for every dollar they spend on Medicaid and uninsured care, which is 11% lower than the national average, the HAP report found.

The One Big Beautiful Bill Act that President Donald Trump signed into law in July cut an estimated $1.1T from Medicaid and Affordable Care Act subsidies. Democrats sought to reverse the healthcare cuts, focusing on the issue during the longest-ever government shutdown in the fall, but they were ultimately unsuccessful.  

The likely outcome of the federal cuts is additional strain on Medicaid-dependent hospitals across Pennsylvania, Transwestern Development Co. Managing Director of Healthcare Services Cheri Doyle said.

“Over the course of these cuts, they’ll be paid less and less, which means less reimbursement and operating revenue,” she said. “If they were operating with the same volumes and the same patient pool, they’re just going to see their margins erode.”

While Migdail said rural and urban safety-net hospitals are most at risk with federal funding cuts, lower-income sections of the Philadelphia suburbs haven't been spared.

Prospect Medical Holdings’ January 2025 bankruptcy led to the shutdown of its Delaware County subsidiary, Crozer Health, which left much of the region facing emergency care gaps.

Crozer-Chester Medical Center’s operating margin fell more than 40% in fiscal year 2024 as 41% of its net patient revenue came from Medicaid, according to data published by the state-affiliated Pennsylvania Health Care Cost Containment Council in July 2025.

That rate was far above every other hospital the council analyzed in the Philadelphia collar counties. Suburban Community Hospital in Norristown, which closed its emergency room last March, had medicaid patients making up 23% of its NPR, and its operating margin fell by almost 36%.

Jefferson Lansdale Hospital, which had 17.9% operating margin growth, only derived 7% of its NPR from Medicaid.

The Crozer situation has a silver lining: Investor KQT Aikens Partners 2 plans to spend $1M each on Springfield Hospital and Taylor Hospital in Ridley Park through Prospect’s bankruptcy auction. 

The entity, led by Todd Strine, majority owner of ambulance company Keystone Quality Transport, aims to reactivate the Taylor emergency department and is seeking the removal of a deed restriction that is necessary for a similar outcome in Springfield. Strine didn’t respond to Bisnow’s request for comment.

“The ideal thing that could happen is we reopen an emergency room, because that’s what Delaware County needs,” he told The Philadelphia Inquirer in September after KQT’s plan to buy Taylor became public.

“There’s a ton of carrying costs and a lot of uncertainty about how long it’s going to take to fill up,” Strine added.

While reactivating a defunct hospital isn’t unheard of, it also isn’t particularly common. 

“It’s extremely challenging if the asset is antiquated,” said Cushman & Wakefield Managing Director Shane Funston, who focuses on healthcare real estate.

New construction is often a better option for operators looking to bring a hospital to a community that recently lost one, he said.

Some national and state lawmakers have been eager to pass legislation designed to keep struggling hospitals afloat.

On the federal level, the issues of private equity involvement in healthcare and sale-leaseback agreements with REITs were the targets of an October 2025 U.S. Senate bill sponsored by a group of Democrats.

Sale-leasebacks — in which a hospital operator sells its property to a real estate firm and then leases it back — have been cited as contributing to the bankruptcies of Prospect and Steward Health Care, which both executed such deals with REIT Medical Properties Trust. Prospect struck a $1.5B sale-leaseback deal in 2019 that gave MPT ownership of four Crozer Properties.

But Doyle and Funston said sale-leaseback agreements aren’t an inherently bad move for hospitals.

“I’ve never seen a hospital that was doing well and did sale-leasebacks and fell apart,” Doyle said.

The problems arise when an already distressed facility or system monetizes its facilities. Rent payments added to its monthly expenses can become a problem after they burn through the newfound cash.

“Those hospitals were in danger anyway,” Doyle said. “It was more out of desperation.”

Healthy systems will sometimes execute sale-leaseback agreements for their peripheral facilities, but Funston said it is uncommon for them to do so for their core hospitals. Those are so expensive to build that executives generally want to maintain ownership, he said.

Creditworthy healthcare systems can utilize another creative real estate maneuver that brings some benefits of monetization without requiring them to sacrifice ownership outright, he said. 

“Instead of monetizing, you can put financing on the building,” Funston said. “Over a period of time, ownership will revert back to the health system.”

Private equity acquisitions of hospital systems and sale-leaseback agreements have also led to state legislative proposals in Pennsylvania.

House Bill 1460 would give the Department of Health and the Office of the Attorney General the authority to block transactions concerning healthcare entities if they are deemed to be against the public interest. It also specifically targets sale-leaseback agreements and private equity firms.

The bill penned by State Rep. Lisa Borowski, who represents part of Delaware County, came just months after Prospect’s bankruptcy. It passed the house and was referred to the Pennsylvania Senate in June, but it hasn't advanced since then. 

HAP, an industry group that represents dozens of Pennsylvania hospitals, doesn't support HB 1460.

“In the midst of considerable financial headwinds and policy uncertainty, Pennsylvania should not become an outlier that discourages routine transactions, joint ventures, and partnerships that aim to add, not detract from, access in communities,” Migdail said in a statement.

“The way that we ensure hospitals can remain open is by addressing the structural financial challenges that put access to care at risk.”