New Study Warns of Up to $25B in Hospital Revenue Losses from Medicaid Disenrollment

A new Kodiak Solutions analysis warns that Medicaid cuts under the OBBBA could cost hospitals up to $25 billion a year, hitting net revenue hard and reshaping payer mix and uncompensated care.

The One Big Beautiful Bill Act (OBBBA) is causing a seismic shift for healthcare CFOs. While Washington touts the $1.1 trillion in projected federal healthcare savings by 2034, CFOs are confronting a more sobering number: A potential $25 billion annual drop in net revenue, according to a new benchmarking study by Kodiak Solutions.

Kodiak’s latest report models the financial fallout of four Medicaid disenrollment scenarios, forecasting the revenue and income impact on an average U.S. hospital. Drawing on real data from more than 2,100 hospitals and 300,000 physicians, the study brings to light what CFOs have feared: The OBBBA could dramatically swell the numbers of the uninsured, eroding hospital margins and escalating uncompensated care burdens.

"Denver Health sees close to 125,000 Medicaid patients per year,” April Audain, CFO of Denver Health, previously told HealthLeaders. “ Adding barriers to enrollment to Medicaid undoubtedly will result in more uninsured Coloradans. The net result will be delays in care for patients and additional financial burdens.”

Four Scenarios, One Clear Message

Kodiak’s report assumes that individuals losing Medicaid coverage under the OBBBA will become self-pay patients, many of whom will ultimately be unable to pay. The study places payer data into three categories --Medicaid, self-pay, and all other payers --, and outlines the following disenrollment scenarios:

• Scenario 1: 5% Medicaid disenrollment
   A $1 million loss in net revenue. Collection rates drop from 21.1% to 21.0%.
   
• Scenario 2: 10% Medicaid disenrollment
   A $2 million revenue hit, with collection rates falling to 20.9%.
   
• Scenario 3: 15% Medicaid disenrollment
   A $3 million decline in net revenue, as collection rates dip to 20.8%.
   
• Scenario 4: 20% Medicaid disenrollment
   The worst-case scenario shows nearly $4 million in lost revenue and a 71% drop in net income. Collection rates stagnate at 20.8%, underscoring diminishing returns as more patients shift to self-pay status.
   

The numbers become even more dire when looking at the big picture: If the 20% disenrollment scenario plays out nationwide, total hospital net revenue could shrink by as much as $25 billion in just one year.

CFOs: Prepare for Margin Compression

The study is less of a forecast and more of a clarion call. The OBBBA will likely set off a significant deterioration in payer mix, replacing relatively stable Medicaid reimbursements with volatile, and largely uncollectible, self-pay charges. Even a modest 5% disenrollment translates into material revenue loss for health systems.

With hospital margins already razor-thin in many markets, Kodiak’s data indicates that net income could fall by more than 70% in the most severe scenario. That much margin compression could push vulnerable hospitals, especially safety-net providers and rural health systems, into the red, or even toward insolvency. On the tail-end of this scenario, the industry could see more health system bankruptcies.

Strategic Imperatives

To mitigate the impact, CFOs must act decisively:

• Reevaluate payer mix assumptions in budgeting and forecasting models.
   
• Bolster financial assistance and eligibility screening programs to capture alternative coverage or charity care pathways for patients.
   
• Invest in revenue cycle automation to accelerate cash conversion from insured and self-pay populations alike.(Read this to learn more about revenue cycle tech investments.)
   
• Engage state policymakers to monitor how Medicaid waivers and state-based exchanges respond to the federal cutbacks.

The OBBBA may reshape the national healthcare budget, but Kodiak’s report underscores that the cost will not be evenly distributed. For CFOs, the challenge ahead is clear: Protect net revenue, preserve margin, and prepare for the long tail of policy-induced disruption. The financial future of the average American hospital may hinge on how well its leadership responds to this unfolding crisis.