OBBBA and Medicaid: What Urban Safety Net Hospitals Need to Know Now

Urban safety net hospitals (USNH) rely on Medicaid funding to support the needs of their patient populations, which include underserved and often uninsured individuals. Even modest reductions in that funding can strain an organization’s already limited resources and threaten operational resilience and, according to the Congressional Budget Office (CBO), up to 16 million people could lose Medicaid eligibility by 2034. For that reason, it is especially important to understand how the One Big Beautiful Bill Act (OBBBA) may reshape Medicaid funding over the next several years. This article highlights key Medicaid-related provisions in the OBBBA and offers practical actions to take ahead of effective dates in late 2026, 2027, and 2028.

How will Medicaid funding for USNHs change under the OBBBA?

The OBBBA, signed into law on July 4, 2025, contains a number of health-related provisions resulting in significant changes to Medicaid eligibility. For example, as patients lose their coverage — and their ability to pay for healthcare from other medical providers — visits to USNH emergency rooms could increase simultaneously with funding decreases. Enrollees as well as healthcare providers will see the impact of the following provisions as the law takes effect: 

• Work and Community Engagement requirements: Effective December 31, 2026, most Medicaid recipients aged 19 to 64 or those enrolled through an Affordable Care Act (ACA) expansion group will be required to meet certain work requirements. 
• More frequent redeterminations: States will be required to conduct eligibility redeterminations for most Medicaid recipients every six months, instead of annually. This provision is expected to take effect on January 1, 2027. Enrollees may lose coverage if they fail to provide verification of eligibility. 
• Expanded cost sharing: Patients may now be required to pay higher copays and other out-of-pocket expenses. When patients are unable to pay, providers may deny non-emergency care.
• Restrictions on provider financing and payments: The OBBBA places new limitations on how states raise Medicaid money and how providers are reimbursed. Urban safety net hospitals and similar facilities may be particularly vulnerable to this reduction in revenue. 

Collectively, these changes will affect both healthcare providers and enrollees in several key areas. As more stringent eligibility and redetermination requirements take effect, Medicaid enrollment is expected to decline materially, particularly among populations subject to new administrative and reporting requirements. The magnitude of potential coverage losses is expected to vary by state and by implementation approach.

Anticipating a decrease in Medicaid members, lawmakers negotiated a $50 billion fund for facilities that meet the following qualifications:

• Facility criteria: The facility must fit within the definition of certain enumerated facility types, including rural emergency hospitals, small rural hospitals, and sole community hospitals. 
• Geographic criteria: The facility must be located outside a Metropolitan Service Area (MSA) and at least 25 miles from the nearest facility.

For example, a USNH located in the Philadelphia metropolitan area will not qualify for the additional funds, but the same size facility located in nearby Pottstown might. 

How will urban safety net hospitals manage increased administrative burdens?

Both healthcare providers and Medicaid enrollees will face additional paperwork and compliance hurdles after implementing new eligibility processes. USNHs can help reduce friction in several key areas, including:

• Medicaid redetermination support: Providing hands-on resources and support to patients who are navigating Medicaid paperwork or who have lost Medicaid coverage.
• Staff training: Educating frontline and administrative staff on new processes, providing them with the information needed to support patients who may be confused by the new processes.
• Technology: Investing in automation and AI-enabled tools to streamline administrative efficiency before Medicaid-related OBBBA provisions take effect. 

Time spent reducing obstacles to Medicaid eligibility and managing compliance issues could help maintain patient care while improving internal processes. 

What steps can USNHs take now to offset the potential increase in uncompensated care?

In addition to helping patients maintain coverage, USNHs can prepare for the potential influx of more emergency room patients amid declining revenue by exploring new revenue streams, including the following:

• Explore new funding: Identify and pursue all available federal and state funding streams designed to offset the costs of caring for uninsured and underinsured individuals. Opportunities could include Medicaid Disproportionate Share Hospital payments and other uncompensated care-related supplemental payment programs. 
• Apply for state innovation waivers: Under Section 1115 of the Social Security Act, and administered by the Centers for Medicare & Medicaid Services, state governments may test pilot or experimental projects related to Medicaid. Receiving broad grants and waivers can empower USNHs to develop creative care delivery solutions aimed at reducing costs. 
• Payment model changes: Providers can pursue value-based arrangements with payers to enhance reimbursement potential by shifting payment models from volume-driven to outcomes to performance-based structures. BDO’s Actuarial Services professionals can support these efforts by modeling financial risk, evaluating reimbursement scenarios, and assessing the sustainability of value based arrangements.

Starting now can help reduce gaps in revenue in 2027 and 2028.