On February 25, the U.S. House narrowly passed a budget amendment containing reconciliation instructions that allow the Senate to pass legislation with a simple majority vote, preventing a potential filibuster. The resolution calls for $2 trillion in spending cuts, $4.5 trillion in tax cuts, and a $4 trillion increase in the debt ceiling. This comes after the Senate approved its own version on February 21. The next step is for the House and Senate to develop and pass a joint budget resolution that includes reconciliation instructions.
While the resolution is expected to include cuts to Medicare and Medicaid, some moderate Republicans in the House and Senate have expressed concerns about the potential amounts. Therefore, there may be some softening of savings targets for government healthcare programs in the joint package. However, those changes will need to be balanced with fiscal conservatives’ demands for additional deficit reduction. These competing demands will complicate the construction and passage of a reconciliation package.
Potential Cuts to Medicare & Medicaid
Of the $2 trillion in cuts included in the House budget amendment, $880 billion are to be identified by the Energy and Commerce (E&C) Committee, which has jurisdiction over Medicare and Medicaid. President Trump and Republican leaders in both chambers continue to eschew cuts to Medicare, Medicaid, and Social Security benefits.
Speaker Johnson appears to have backed away1 from the most frequently discussed and largest savers: reducing the Medicaid federal match rate (FMAP) for the Affordable Care Act expansion population (projected savings of $561 billion over 10 years),2 reducing the FMAP for relatively high-income states (projected savings of $405 billion over 10 years),3 and capping the federal contribution to state spending on a per capita basis (projected savings of up to $900 billion over 10 years).4,5
Despite these concerns, there are still a number of options to reduce federal spending for Medicare and Medicaid that currently appear to have political viability. These include:
- Mandatory Medicaid Work Requirements for the Able-Bodied Population: Congressional Budget Office scoring of similar legislation estimates that work requirements would save $109 billion over 10 years and reduce Medicaid enrollment by 600,000 individuals.6
- Limit Medicaid Provider Taxes:7,8 Reducing the statutory cap on the amount states can tax providers is estimated to save $175 billion over 10 years.
- Repeal the Skilled Nursing Facility Staffing Ratio Mandate:9 Legislative repeal of the staffing ratio requirements imposed on long-term care providers in a rule finalized by CMS in May 2024 is estimated to save $22 billion.
- Expand Medicare Site-Neutral Payments: Options could include a repeal of the Section 603 grandfathering or MedPAC’s proposal to pay for select outpatient services based on where they are most commonly performed. Either approach may carve out rural hospitals and safety net providers, as has been proposed in a bipartisan framework. Expanding site-neutral payments is estimated to save up to $146 billion over 10 years.
- Preventing Dual Geographic Hospital Classification: An option under consideration would prevent hospitals from being classified as both urban and rural for Medicare payment purposes. The proposal is projected to save $10 billion over 10 years.10
In each instance, specific legislative language has not been developed (as of March 26, 2025), making detailed commentary difficult. This list will evolve as moderate Republicans continue to express concerns about the impact to beneficiaries and fiscal conservatives continue to demand savings for deficit reduction. If the House E&C Committee’s target of $880 billion holds as the package evolves, Congress will need to find additional Medicare and Medicaid savings.
Timing for Next Steps
Speaker Johnson has indicated he would like to pass a reconciliation bill by Memorial Day.11 However, that timeline may be aggressive. Additional material action on the package will likely not occur until April at the earliest. The House and Senate must negotiate a budget resolution with reconciliation instructions that can be passed out of both chambers. Before that can happen, the Senate Parliamentarian will need to rule on the permissibility of several issues under the rules governing the reconciliation process. This could take several weeks.
How Providers Should Prepare for Potential Changes
The Healthcare Practice at Forvis Mazars recently released our Healthcare Market Point of View, which outlines the importance of achieving health for organizations and those they serve, as well as the following five core capabilities necessary to do so:
- Aligned Growth
- Financial Discipline
- Regulatory Excellence
- Strategic Agility
- Talent Optimization
These capabilities are increasingly important at a time when almost 750 hospitals are at risk of closing12 and the regulatory and legislative environment is unfavorable and rapidly evolving. Given the scale of anticipated cuts to Medicare and Medicaid, healthcare organizations must accelerate performance improvement efforts to maintain financial discipline. This should be a holistic effort that addresses both revenue-generating and cost management opportunities. Hospital and health system executives across the country are assessing and implementing initiatives across the following in 2025:
- Labor: Labor is the largest component of providers’ cost structure. Organizations will need to manage staffing in both clinical and non-clinical settings to improve efficiency and optimization. They will also need to assess job duties and functions to minimize disruption if they choose to pursue rightsizing to volumes. Making quick decisions about labor typically results in long-term damage to culture. Providers should benchmark productivity and assess span of control to help them make informed decisions.
- Non-Labor: Providers should closely monitor the organization’s supply chain. As tariffs levied by the federal government impact input prices, organizations will likely need to look for opportunities to reconfigure sourcing and shift to lower-cost sources. In addition to the supply chain, costs related to employee benefits present an opportunity for savings. Often, there are areas within the benefits package for which hospitals are overcharged by vendors and/or brokers. Analyzing these areas and using data to either negotiate a lower rate with the current vendor/broker or rebid the service can generate significant savings without shifting costs to employees or reducing the level of benefit provided.
- Pricing: Even with an efficient cost structure, many organizations may struggle to maintain a positive margin as Medicare and Medicaid reimbursement is cut. To support financial discipline and help maintain a positive margin, hospitals should benchmark their managed care rates using publicly available price transparency data. Sophisticated analysis of these large data sets can help identify where hospitals are underpaid by plans relative to market.
- Service Line Analysis: Providers should also evaluate the operational and financial performance of the portfolio of services they offer at each location. Proactively taking a deeper dive can help organizations identify services they can consolidate or rationalize to help the organization continue to thrive.
In addition to focusing on performance improvement, proactive organizations may be able to reduce the revenue impact of some cuts by maintaining a strong awareness and understanding of the legislation. A commitment to regulatory excellence is a core underpinning of the strategic agility necessary to create and execute innovative, adaptable plans. As an example, enough is known about the various proposals for hospitals to begin modeling the impact of expanding site-neutral payments on both payments and market dynamics. With the help of this modeling, hospitals can determine whether they should bring back some services to the main campus (if changes do not apply to on-campus outpatient departments). Taking this step can help hospitals plan to preserve access to crucial services for the community.
How Forvis Mazars Can Help
Our professionals at Forvis Mazars are committed to helping healthcare organizations develop the core capabilities necessary to understand and adapt to the impact of evolving federal policies and congressional legislation. We encourage you to join our live, biweekly Washington Watch: Healthcare Briefings to hear the latest updates. If you have questions about upcoming policy changes and how they may affect your organization, please reach out to a professional on our team.
- 1“What’s Next for Medicaid?”, politico.com, February 28, 2025.
- 2“Ways and Means Committee,” politico.com.
- 3“Medicaid Financing Reform: Stopping Discrimination Against the Most Vulnerable and Reducing Bias Favoring Wealthy States,” paragoninstitute.org, 2025.
- 4“Department of Health and Human Services,” project2025.org.
- 5“Fact Sheet: Per Capita Caps in the Medicaid Program,” aha.org, February 7, 2025.
- 6“Re: CBO’s Estimate of the Budgetary Effects of H.R. 2811, the Limit, Save, Grow Act of 2023,” cbo.gov, April 25, 2023.
- 7“Health Reform Menu,” paragoninstitute.org.
- 8“Republicans Say States Are Pulling a Fast One on Medicaid,” politico.com, February 27, 2025.
- 9“Congress Moves to Kill New Nursing Home Staffing Mandates,” iowacapitaldispatch.com, February 28, 2025.
- 10“Re: Mandatory Spending Under the Jurisdiction of the House Committee on Energy and Commerce,” cbo.gov, March 5, 2025.
- 11“Johnson Says He Expects to Pass Most of Trump’s Agenda With 1 ‘Big, Beautiful Bill’ by Memorial Day,” thehill.com, January 5, 2025.
- 12“748 Hospital at Risk of Closure, State by State,” beckershospitalreview.com, March 6, 2025.