Medicaid Cuts Force Health Systems To Reconsider Expansion Plans

Medicaid is about to experience the largest cut in the program's history, with the One Big Beautiful Bill Act set to slash federal spending on the program by more than $900B over the next decade. 

The cuts are not only a threat to the millions of patients who depend on the government healthcare program but also to many hospitals around the country that rely on Medicaid payments for their profitability. This will likely impact their real estate expansion plans, several industry experts said Wednesday at Bisnow's Mid-Atlantic Healthcare Summit.

The uncertainty created by the OBBBA is one of the largest impediments to doing deals today, said Remedy Medical Properties Executive Vice President Dan McGivney, whose firm leases space to health systems.

“We’ve seen a lot of groups from large to small highlight the Big Beautiful Bill, uncertainty on changes to [Medicaid] funding and how that impacts them, so we’ve seen projects stall, our development team has seen RFPs just kind of sit and not come out until these groups can really determine what is the environment they’re going to be operating in,” McGivney said at the event, held at the Renaissance Arlington Capital View Hotel. 

Nationally, more than 10 million people are estimated to lose health insurance by 2034 due to the OBBBA's cuts. This, in turn, will hurt the income of many hospitals. A new analysis this week from Kodiak Solutions projects nationwide revenue losses of up to $25B annually due to the Medicaid cuts. 

Inova Health System Vice President Marque Macon cited the analysis onstage and said it presents a major challenge for hospital systems.

“Those patients that’d potentially lose coverage are not going to stop coming into our facilities,” he said. “So we’re going to have to figure out a way to continue to deliver that care and still be financially solvent.”

Washington, D.C., is pushing to expand its hospital network in the city's lower-income areas east of the Anacostia River, with the latest such project opening in April: the Cedar Hill Regional Medical Center at the St. Elizabeths East campus.

“We all have to pay attention to the changes in Medicaid eligibility and what that's going to do to how systems approach expansion of their facilities — and their financial wherewithal,” said Benjamin Stutz, director of hospital health system development for the D.C. government.

The District estimates that 95,000 residents — nearly 1 in every 7 people in the city — are at risk of losing Medicaid coverage due to the OBBBA, particularly in lower-income areas.

“When we think about establishing systems and new assets in the community, at the end of the day, we still have to do so with an eye toward reimbursements, who we are servicing and how we're going to make this balanced,” Stutz said. 

The reduced access to Medicaid will be felt most acutely at hospitals that serve populations with high concentrations of patients who have relied on the government health insurance program, and it is particularly dangerous for standalone hospitals that don't have the financial backing of a larger system. 

“You have a lot of pressure, especially on facilities that serve Medicaid patients. And especially if they’re not part of a larger system, they are going to be under a lot of pressure in the next couple of years,” Stutz said.

UnitedHealthCare Mid-Atlantic CEO Joe Ochipinti is worried about this dynamic. He said the level of care needed for a patient is the same regardless of whether they have health insurance, and hospitals will need to figure out how to manage receiving fewer reimbursement dollars when the uninsured population rises.

“So that’s what keeps me up at night: How do we continue to service and partner and provide the level of care that’s needed at the right cost?” he said. 

The hospital real estate industry has already experienced some distress over the last two years, with health systems Steward Health Care and Prospect Medical Holdings filing for bankruptcy and closing hospitals. 

Anchor Health Properties Investment Manager Rob Rumer saw the effects of these bankruptcies up close. His firm owns five outpatient facilities in Delaware County, Pennsylvania, that were operated by Prospect. 

In May, ChristianaCare won a $50.3M auction to take over the facilities, and last month the operator and Anchor Health announced a joint effort to reposition the 190K SF portfolio. 

“They’re going to keep most of the same practices in those buildings, which from our perspective is a good outcome in what could have been a pretty bad situation,” Rumer said. 

But not all former Prospect facilities in Delaware County have seen this positive outcome — the Crozer-Chester Medical Center and Taylor Hospital both closed in March. Taylor Hospital was acquired this week by a group of private investors and may soon reopen. 

“I will say, in the bankruptcy, there were hospitals shuttered that people in those areas are still going without,” Rumer added. “So it was a good outcome for us, but the community is still without an acute care hospital there.”

Rumer also said he has seen overall leasing from health systems slow due to the OBBBA and the Trump administration's tariffs creating uncertainty. 

“They’re large organizations, and sometimes when stuff happens that causes uncertainty, they just push pause for a little,” he said.