Medicaid Changes Threaten Hospital Finances Despite Recent Gains in Cash Reserves
A surprising trend emerged in the last year: hospital finances, measured by days cash on hand, actually improved. But don’t celebrate yet. New policy changes impacting Medicaid eligibility, signed into law this July, are poised to reverse that progress, potentially pushing already strained healthcare systems into deeper financial uncertainty. The stakes are high, with an estimated 11.8 million Americans facing potential loss of coverage.
The Recent Respite: A Closer Look at Days Cash on Hand
Health systems use ‘days cash on hand’ – a measure of how long a hospital could continue operating at current burn rates using its available cash – as a critical indicator of financial health. Nationally, this metric rose from 112 days in June 2024 to 128 days by June 2025, according to Strata’s recent “Performance Trends Report: Market Insights from Q2 2025.” Interestingly, hospitals heavily reliant on Medicaid revenue (more than 10% of patient days) saw even more significant gains, closing the gap with their peers and even surpassing the national average in early 2025.
The One Big Beautiful Bill and the Looming Medicaid Cliff
This positive trend, however, is overshadowed by the “One Big Beautiful Bill Act.” This legislation introduces stricter eligibility requirements, work mandates, and an accelerated redetermination cycle for Medicaid enrollees. The Congressional Budget Office projects nearly 12 million individuals will lose coverage, significantly increasing the number of uninsured Americans. This isn’t just a social issue; it’s a financial one for hospitals.
The Shift to Self-Pay and the Emergency Room Impact
Historically, Medicaid represents approximately 12% of overall revenue for health systems. But as eligibility tightens, hospitals anticipate a surge in self-pay patients, particularly in emergency departments. We’ve already seen a preview of this. Following the end of the federal government’s “continuous enrollment” policy in 2023, self-pay ER visits jumped, with a staggering 60% increase among pediatric patients. This shift is problematic because hospitals consistently lose money on self-pay cases, and the losses are far greater than those associated with Medicaid.
Where the Pain is Felt Most: Service Line Disparities
The financial impact isn’t uniform across all hospital services. Strata’s report reveals significant disparities. Outpatient orthopedic procedures, for example, yield a median loss of $430 per case for self-pay patients, compared to a $247 loss with Medicaid. General medicine sees an even wider gap: a $486 loss for self-pay versus $95 for Medicaid. However, the most dramatic difference is in behavioral health, where self-pay cases result in a $564 loss per case, compared to just $69 for Medicaid. Emergency self-pay cases are particularly damaging, with median losses of $616 per case – significantly worse than the $128 loss for Medicaid patients.
The Double Hit of Emergency Care
The move from outpatient to emergency care exacerbates the problem. As the report notes, hospitals face “a double hit: higher care costs combined with a lower likelihood of payment.” Delayed care due to loss of insurance often results in patients seeking treatment only when conditions become acute, requiring more expensive emergency interventions. This creates a vicious cycle, straining hospital resources and widening the gap between cost and reimbursement.
Navigating the Uncertainty: What Hospitals Can Do
While the future is uncertain, proactive strategies are crucial. Hospitals should focus on strengthening relationships with remaining Medicaid managed care organizations, optimizing revenue cycle management to maximize collections, and exploring innovative care delivery models that emphasize preventative care and reduce reliance on expensive emergency services. Investing in robust patient financial assistance programs may also mitigate some of the impact from the increase in self-pay patients. Furthermore, advocating for policies that support access to affordable healthcare remains vital.
The recent gains in days cash on hand offer a temporary reprieve, but the looming Medicaid changes represent a significant threat to hospital financial stability. Successfully navigating this challenging landscape will require strategic planning, operational efficiency, and a commitment to providing accessible, affordable care to all patients. What strategies are your institutions implementing to prepare for these changes? Share your insights in the comments below!
