AHLA's Speaking of Health Law
The American Health Law Association (AHLA) is the largest nonprofit, nonpartisan educational organization devoted to legal issues in the health care field. AHLA's Speaking of Health Law podcasts offer thoughtful analysis and insightful commentary on the legal and policy issues affecting the American health care system.
AHLA's Speaking of Health Law
Top Ten 2026: Impacts of OBBBA Implementation and Reduced Federal Health Care Spending
Based on AHLA's annual Health Law Connections article, this special ten-part series brings together thought leaders from across the health law field to discuss the top ten issues of 2026. In the first episode, Jackie Papish, Partner, Barnes & Thornburg LLP, speaks with Emily Felder, Shareholder, Brownstein Hyatt Farber Schreck LLP, about how the One Big Beautiful Bill Act and reduced federal health care spending will continue to impact the health care industry in 2026. They discuss issues related to state directed payments/provider tax credits, work requirements, the Rural Health Transformation Program, Administration oversight of federal funds to the states, and implications as the midterm elections approach. From AHLA’s Hospitals and Health Systems Practice Group.
Watch this episode: https://www.youtube.com/watch?v=N_blsonhIGg
Read AHLA's Top Ten 2026 article: https://www.americanhealthlaw.org/content-library/connections-magazine/article/a879dda5-35f9-46fb-ad45-1b0799343d74/Health-Law-Forecast-2026
Access all episodes in AHLA's Top Ten 2026 podcast series: https://www.americanhealthlaw.org/education-events/speaking-of-health-law-podcasts/top-ten-issues-in-health-law-podcast-series
Learn more about AHLA's Hospitals and Health Systems Practice Group: https://www.americanhealthlaw.org/practice-groups/practice-groups/hospitals-and-health-systems
Essential Legal Updates, Now in Audio
AHLA's popular Health Law Daily email newsletter is now a daily podcast, exclusively for AHLA Comprehensive members. Get all your health law news from the major media outlets on this podcast! To subscribe and add this private podcast feed to your podcast app, go to americanhealthlaw.org/dailypodcast.
Stay At the Forefront of Health Legal Education
Learn more about AHLA and the educational resources available to the health law community at https://www.americanhealthlaw.org/.
Welcome to AHLA's annual Top 10 Series, where we discuss the major health law trends and developments of 2026. Learn more about AHLA at americanhealthlaw.org.
SPEAKER_01:Hello and welcome to episode one of AHLA's 2026 Top 10 Podcast Series. My name is Jackie Papish. I'm a partner at Barnes and Thornburg in Washington, D.C., and vice chair of AHLA's hospitals and health systems practice group, and I'll be your moderator today. I'm joined here by Emily Felder, shareholder at Brownstein High Barber Shrek. Emily is the author of the recently published AHLA Connections article titled Impacts of the One Big Beautiful Bill Act, Implementation and Reduced Federal Health Care Spending, which will serve as a basis for our discussion today. Emily, thank you so much for being here. Can you take a couple of minutes just to tell us a little bit about yourself?
SPEAKER_02:Absolutely. Thank you so much, Jackie, for having me. I'm a shareholder at Brownstein and I chair the health care policy group. I started my career on the Hill working on healthcare policy issues most recently for the Energy and Commerce Committee, and then served at CMS, where I was the director of the Office of Legislation. So I was the chief liaison between CMS and the Hill. Now at Brownstein, I represent healthcare companies before federal agencies and before Congress, advising them on healthcare policy issues that impact their companies. So great to be here with you today.
SPEAKER_01:Thanks so much, Emily. Why don't we go ahead and set the stage for our listeners here? We're talking about today an article that you authored that centers on the one big beautiful bill act. Or as some might refer to it, I think we've previously discussed OB3. Can you please give our listeners just a little bit of a baseline as to what the bill is about and maybe what some can what are some considerations that are at play with respect to it?
SPEAKER_02:Absolutely. I think it's important to remember as a threshold matter that this was a bill that was passed with only Republican votes. It's a reconciliation bill, which means it can pass the House and the Senate with only Republican votes if those parties are in power. And so it really reflects the president's priorities, congressional Republican priorities, but not the intent of the entire Congress. And so when you think about that, uh the driving factor of this bill was to extend President Trump's 2017 tax cuts. So the Tax Cuts and Jobs Act that passed during his first term, those tax cuts were up to expire at the end of last year. And the president wanted a vehicle to extend those tax cuts. In order to do that, they needed to cut a lot of federal funding to pay for those tax cuts. So while this bill has huge health care policy implications and huge health care cuts, uh, it really isn't a health care policy bill. It was a tax bill that needed to draw in Medicaid and other federal health programs to be able to pay for continuing those tax cuts. So that's important because it really wasn't policy driven. Um it is an entire recalibration of the federal-state partnership with Medicaid. It focuses a lot on decreasing federal funds to states to pay for programs that have really increased in funding and access and coverage over the last 10 to 20 years. And I think that the the congressional estimates are about a trillion dollars over 10 years will be cut from the Medicaid program. Um so I think there's going to be a lot of political implications in the midterms, and we can talk about that in a little bit. Uh, but certainly providers, large healthcare systems, states, uh, beneficiary groups are grappling with how are we going to change uh the way that we interact with the federal government over a relatively short implementation period?
SPEAKER_01:Now, a couple of the things that you mentioned uh in your article include um uh state-directed payments and these provider tax credits. So, for those of our listeners, maybe who aren't as familiar or as steeped in the language of the bill and the implementation of the bill, can we take a couple of minutes and just touch on those two components so that folks kind of understand what uh what those are exactly and also what's the impact of those and how might that impact both providers and beneficiaries alike?
SPEAKER_02:Absolutely. So the state directed payments and the provider tax piece of the bill are where the bulk of the savings come from. So when you hear about the trillion dollar cut over 10 years for Medicaid, most of that is coming through the changes to state directed payments and provider taxes. So starting with the provider taxes, these are uh provisions that allow states to tax hospitals, you know, large providers, uh up to 6% of their patient revenue. And from that, they can draw down additional federal savings. So if the Medicaid program is a state federal partnership or the state pitches in a certain amount of dollars, and the federal government matches that, these provider taxes are an additional way for states to draw down dollars and allow the federal government to match that. So it's been capped at 6%. Um, you know, what this bill does is to say that 6% threshold is going to get a lot smaller. That 6% threshold is going to go to 3.5% starting in 2028. So nothing will change for the for the interim period, but in 2028, they're going to reduce that threshold by 0.5% until it's to 3.5%. So that's a significant change in how many additional sort of supplemental dollars states can draw down from the federal government. It's important to note this only applies to the expansion states. So 41 states expanded Medicaid after the Affordable Care Act allowed Medicaid to apply to able-bodied adults. So those 41 states will have this change. For the nine states or so that did not expand Medicaid, they can continue that 6% threshold. So it's really a way for uh Republican lawmakers to acknowledge that states that have expanded Medicaid under the ACA are drawing down more federal dollars than their counterparts that did not expand Medicaid. For the state directed payments, that's a more recent funding mechanism that uh allows states to charge NCOs a little bit more so that the Medicaid payments are closer to Medicare rates or even the average commercial rate. So to say, you know, Medicaid rates are typically much lower than Medicare or commercial. And so this is a way to get providers to pay, or sorry, rather, plans to pay more to draw down additional federal dollars. Uh those state directed payments, like I said, have been cropping up more in the last 10 or so years and have really increased so that you see some Medicaid providers getting paid closer to the commercial rate. So what Congress did is to say, we don't think Medicaid should get the commercial rate. We think they should get closer to Medicare. So they're capping those rates at Medicare rates. And again, the expansion states are treated a little differently than the non-expansion states. The expansion states are capped at 100% of the Medicare rate. So now you can only get paid that Medicare rate, uh, not the commercial, and the non-expansion states can get up to 110% of Medicare. Uh, but together, you know, uh these provider taxes and state directed payment changes um account for the majority of those Medicaid savings. So it's pretty significant. I think provider taxes, those changes are about 700 million or 700 billion rather over 10 years, and the state directed payments changes are about 150 billion in savings over 10 years.
SPEAKER_01:Those are some really big numbers. Um not really that long of a time period. Um, I mean, what does that really uh mean? Or I guess sort of in your experience in dealing with um, you know, the OB3 since uh its adoption last year, I mean, what does that really mean for the providers who might have you know big um populations that are Medicaid beneficiaries?
SPEAKER_02:Yeah, you know, states are going to figure out, they're gonna have to figure out how to fund Medicaid with significantly less federal money coming in. I think there's a lot of concern about access to services. Certainly, states are going to have to decrease the um amount of services that they provide if they're going to have these significant cuts. I also think providers are gonna be thinking about what we can do to make up for this change uh in reimbursement because Medicaid typically does have very low reimbursement levels. Um are there service lines that they can't provide? Are there areas they're not going to be able to provide services to? Uh, so it's going to be really challenging. I think that, you know, one thing we heard over and over from Congress during this time period is the intention was to look at, quote, waste fraud and abuse. The intention was also not to impact children, because we have to remember the Medicaid population is about 50% kids. Uh, and so while it has grown significantly, most of that growth has been with adult populations. So a lot of these changes were supposed to emphasize changes that would impact those expansion states, the adult population. But certainly when you're looking at this significant of a cut, there are concerns about implications to children's hospitals, where if you have a 50%, 60%, 70% of the children going to a children's hospital are on Medicaid, those impacts are going to not only hit the state, but the provider and kind of what access points kids are going to be able to reach as well. Um, so I think there's going to be a lot of impacts throughout the program, not just to that one specific able-bodied population that Congress was intending to impact.
SPEAKER_01:Right, right, understood. Um, well, as for sort of the able-bodied population, we know one of the biggest components of um the OB3 that we've seen come through, and one that's not particularly new, a new concept or surprise necessarily relates to the work requirements. Um, can you help us just understand a little bit more about what the work requirements actually are, um, you know, why we're seeing their inclusion here in OB3, um, and just you know, simply like how how the uh the implementation of the work requirements might affect some of the key stakeholders uh here in the in the healthcare industry.
SPEAKER_02:Yeah, absolutely. So the work requirements are going to be implemented really quickly. As you mentioned, you know, state directed payments and provider taxes, those are large, large changes, but they're not going to go into effect really till 28. But work requirements are supposed to start at the end of this year, and that was something that was heavily negotiated. A lot of Republicans who believe heavily in some sort of skin in the game for beneficiaries who are uh taking part in the Medicaid program were very uh forceful about wanting to get that done as soon as possible. Uh, and we've seen states like Georgia, they have their Pathways to Coverage program where they have implemented a work requirement for Medicaid for several years now. Um and we expect CMS to implement this pretty quickly. They had guidance out late last year. Uh essentially, it requires anyone who is an able-bodied adult without dependence. So it excludes, you know, folks that have dependent children or other sort of family members that are dependent on them. Uh but if you are required to participate in this program, you must show that you've engaged in some sort of community engagement requirement for 80 hours a month. And so that could be school, that that can be work, that can be volunteerism, job training. There's a whole host of activities. But really, I think the concern that states have is the reporting piece, right? Making sure that every individual who's enrolled in Medicaid, one, knowing whether they're eligible or not for the program or required to participate or not, but then also accounting for and attesting to these activities on a routine basis will be challenging. And I think Georgia's seen that bear out, where the cost of reporting, um, the cost of maintaining that attestation is very challenging over time. Um, I would say CMS has acknowledged this, right? They've said this will be challenging. This is an administrative challenge for states. This is going to be a challenge for beneficiaries. Um, and and they've invested and sort of thought a lot about AI tools and tech and what they can do to ensure that this goes well. Uh, but I think the concern is the cost and the admin cost of setting up these systems is going to outweigh, you know, maybe individuals who uh decide, okay, my Medicare coverage is not worth having to work or do these attestations. I think there's a lot of concern about folks falling through the cracks and trying to figure out how to handle that before implementation begins.
SPEAKER_01:Yeah, yeah. I mean, just talking with you on this very short podcast, I have a lot of questions about, you know, what does that implementation really look like across the United States and tracking and whatnot. So it will be very interesting to see how that rolls out and what sort of perhaps you know headaches are both at the state level and the and the federal level for you know programs that are already, you know, somewhat, somewhat challenged, I would say, in terms of administrative uh um efforts. So um, okay, well, the other big um you know component of OB3 that I want to make sure we touch on, and one that we've seen a lot about in the news is the rural health transformation program. Um and you know, a lot of efforts by the states to get things rolling with respect to this program. Um can you give us a little bit more um color as to what the program is about? Um, and perhaps, you know, as we've seen in the news, what are some concerns about the rollout of the program or you know, other challenges I think that the states and providers within those states who are participating in the program are facing?
SPEAKER_02:Absolutely. Uh, you know, it's interesting how this program came about during the negotiations on OB3. There were a lot of concerns about rural hospitals. So a lot of concerns about, you know, the funding cuts that we discussed earlier. How is that going to impact providers across the country, but most particularly rural hospitals? That's a constituency that a lot of Republicans are close to and concerned about. The sustainability, there've been a ton of rural hospital closures in the last decade. Uh, how is rural health care going to handle this level of impact when they're already dealing with very small margins? Uh, so this rural health transformation fund was Congress's attempt to answer that question. It gives$50 billion to states over five years to invest in rural health care. Uh, you know, the bill itself is actually fairly expansive, and you've seen CMS implement it that way. It's consistent with the statute saying, you know, there's a whole host of different things you can use this money for. Uh, you know, tech advancements, uh, EMS models, you know, upgrades to uh AI, that sort of thing. Um, but really it's been known as the rural hospital funding program. And so, you know, you saw a lot of senators have concerns about how will this money be given out by the states. CMS has implemented it extremely quickly. I mean, it was supposed to be implemented for fiscal year 26. Uh, the funding announcements went out over the holidays. Uh, and so they have moved very quickly. They set up a new rural health office, they have a very detailed funding announcement. Um, and and the the funding was allocated fairly equally among the states. Uh the law was written in a way where for some of the discretionary funding, they could have allotted it to a small number of states, 15, 16. Uh, but all 50 states got not only the initial sort of statutorily required funding, but they also got the additional um subjective funding. And so you saw taxes got the most at around 281 million. And then I think New Jersey got the least, but there wasn't a huge gap between what uh states received. So I think the concern here and sort of the push and pull is going to be how do states allocate these dollars? Are they going to go primarily to providers, primarily to rural providers, or are they going to go to other entities that will work with rural providers, uh, but may not do exactly what rural uh healthcare providers would do if they had the funding themselves? And so there's going to be a push and pull and so, you know, uh and a lot of oversight, I think, by CMS to make sure that states are keeping close to what they put in their applications. Um, but it's a lot of money. It's a lot of money to send out the door over five years. Uh, it's also a completely new program. Uh states haven't seen this level of investment in rural health care in a long time. So I think CMS sees a lot of promise in trying to innovate, trying to think of you know, new ways to ensure access to care and high quality care for rural America. Uh, but I also think there could be some pitfalls there too.
SPEAKER_01:Yeah, we've um, you know, I just in my practice have taken a look at what you know the rural hospitals um you know health uh is is looking like in terms of um uh over the coming years, um, some of the difficulties that they've been uh uh facing. And I think that this is something that you know folks are holding out hope will will help, obviously. Um, but there are some significant, I think, concerns about um closures over the coming years with respect to those rural hospitals and figuring out ways to support them, whether it's you know direct payments to the hospitals themselves or perhaps maybe some innovative solutions to help support them. Um I think you know the coming years will tell sort of how how that uh how that plays out, of course. Um we've seen some uh some articles in the news about the rollout of the funds um to the states and whether the states uh are implementing perhaps priorities in alignment uh or efforts in alignment with um the priorities of this administration and perhaps uh you know situations in which funds could be withheld if um you know certain uh states are not implementing policies in alignment with certain priorities. Um I'm not sure if you can speak a little bit to that or or what you've seen in your practice and and what states might be um you know might be expecting uh as relates to those concerns.
SPEAKER_02:Yeah, absolutely. And I think this administration has not been shy about sort of their viewpoint that federal dollars should be spent in alignment with the president's policy goals and the HHS secretary's policy goals. And we saw that a lot in the first few months of the administration where there were significant freezes on federal grant dollars, federal research dollars, as they went through a rigorous review of what they felt federal dollars should be spent on. And there is a lot of latitude. The administration has a lot of latitude on deciding how to spend those dollars. Um, you know. In this case, I think as it relates to this grant process, CMS is allowed to reduce or withhold funds if the um activities that they're spending the funds on are not in alignment with what was in the application. So they've said we intend to do rigorous oversight. We intend to look at what did the state apply for. We awarded these dollars. Are they spending the dollars in alignment with what they said they would do in the application? And so I think that as long as states are carrying out their uh duties and sort of using the funds for what they said they would use them on, I think that is, you know, something that they don't have to worry about a reduction of funds or or um you know funds being taken away. I do think that um, you know, we should though expect this administration to have a rigorous oversight process, look very closely at how states are spending these dollars. Uh as I mentioned earlier, CMS set up an entirely new office on rural health transformation uh that is set up to review these applications, review the use of the funds. Um, and so, you know, I don't think that an unrelated policy that a state uh pursued as it relates to something outside the scope of this program would result in funds being taken away. But I do think that we should expect them to look very closely at how are funds being used, are they in alignment with a lot of the guidance that HHS has put out as it relates to their policy priorities.
SPEAKER_01:Yeah, that's uh very, very well articulated. Thank you, Emily. I think you know that makes a lot of sense. Um you know, uh I think as we start, as we start to um conceptualize what this will look like over time, uh what is today? Uh we're in early January. So for those who are listening, this is a pre-recorded podcast, so please keep that in mind. But we're in early January, we've got somewhere around 350 days left of this year, right? Um we have seen one, we're one year into this administration essentially, and we've seen a lot of policy changes just in the last year. I'm sure that we could anticipate a number of additional changes in the coming year. Um, yet at the same time, we expect you know midterm elections coming up here this fall. So uh yet again, some additional changes potentially there. Um what can we expect with with respect to OB3 in light of all of these anticipated uh changes, both with our you know administration, perhaps the mid-year elections and whatnot?
SPEAKER_02:Yeah, so I think OB3 is going to be a major point of discussion in the midterms, right? I think that this is, as far as Republicans are concerned, their major legislative accomplishment of this Congress. It was accomplished in the first six months of this Congress, which is an extremely quick time frame. Uh, and I think they're very eager to talk about the successes that they perceive in this bill, right? I think extending the 2017 tax cuts was a huge legislative accomplishment. So that's going to be something they're going to talk a lot about on the campaign trail, especially since that's something that's difficult to explain, right? It's not a new tax cut and it's a it's an extension of an existing tax cut. So I think it's not something that is inherently understood by folks when you're on the campaign trail as opposed to maybe a new tax cut. So that's going to be something where I think they're going to spend a lot of focus. I think on the healthcare provisions, they're going to talk a lot about waste fraud and abuse and trying to root out waste fraud and abuse. That's a common theme we've seen with a lot of, you know, kind of more recent news about fraud investigations in various states in their Medicaid programs and other programs. So that's something that I think they're going to draw that parallel to say a lot of the changes that they they made in this bill, particularly as it relates to work requirements, were an effort to look at waste, fraud, and abuse and try to, you know, minimize the use of federal taxpayer dollars. So that's something I think Republicans will focus on. Certainly, Democrats are also going to focus on OB3 because while none of them voted for it, there are a lot of unpopular policies in their constituencies in that bill. And so they're going to talk about some of the cuts, some of the impaired access, maybe some coverage loss that's anticipated because of these policies. Uh, and certainly, you know, also talk about broader healthcare issues like the expiring and enhanced premium tax credits for the ECA. So there's going to be a lot of healthcare discussion on the midterm trail. We'll see how that goes. Uh, I don't like to prognosticate anymore. Uh, it's very hard to predict, but we'll see how the midterms go. I think if there is a significant shift in Congress, if Republicans lose the House or the Senate, um, it looks maybe more likely that they would lose the House than the Senate. Uh, but if if there is a flip and Democrats do control either the House or the Senate, I would anticipate they would look at OB3 and say, are there areas where we could roll some of this back? Are there areas where we can make changes? I think the most likely of those would probably be delaying the implementation of certain provisions, right? So maybe instead of things going into effect in 28, maybe it's 29, maybe it's 30, maybe it's giving states some more time to think about the gap in funding that they're going to experience when these uh policy changes take effect. Uh, I also think that there's some discussion about um, you know, what the Senate might do. I think certainly the House would be on board with that. There are a number of Republican senators that were concerned about their votes on this bill, who also might be open even if, you know, the Republicans still control the Senate. Uh, as we've seen with the advanced premium tax credits discussion, there's a possibility for some bipartisanship there uh if there's concerns about, you know, the real impact of the cuts and they're getting closer. So I think there's certainly some opportunity here, even if Trump is still the president, uh, to look at are there some changes we can make around the margins um to lessen the impact of this of this legislation. Uh lastly, I'll just say this year, 2026, is gonna be a big year for rulemaking. Uh, as I mentioned, state directed payments, provider taxes, work requirements, CMS has released initial guidance. Uh, they have not yet released formal rulemaking on any of those pieces. So we're expecting that to come this year. There's gonna be a lot of opportunity for notice and comment. Uh, and so a lot of regs to read through, a lot of implementation deadlines to kind of analyze, uh, and kind of see, okay, how is CMS interpreting what Congress passed? And you know, are there ways to tweak that implementation in a way that could be more favorable? So a lot to come this year.
SPEAKER_01:A lot to come, a lot to keep you busy, never a dull moment. Um, so that's a very, very helpful conversation, very enlightening. Thank you so much, Emily. Um, I think it was a great topic for our first episode of AHLA's top 10 podcasts. So we greatly appreciate you joining us today, and thank you to the AHLA Hospitals and Health Systems Practice Group and AHLA for making this podcast possible. Uh, and we we greatly appreciate the time. Thank you so much. Take care. You too.
SPEAKER_00:If you enjoyed this episode, be sure to subscribe to AHLA Speaking of Health Law wherever you get your podcasts. For more information about AHLA and the educational resources available to the health law community. Visit AmericanHealth Law.org and stay updated on breaking healthcare industry news from the major media outlets with AHLA's Health Law Daily Podcast, exclusively for AHLA comprehensive members. To subscribe and add this private podcast feed to your podcast app, go to americanhealthlaw.org slash daily podcast.