Experts are warning that cuts the One Big Beautiful Bill Act makes to Medicaid pose a significant threat to rural hospitals, but hospitals across Virginia are bracing for the impact.

Chesapeake Regional Healthcare, for example, projects a loss of more than $20 million as a result of the cuts.

“While the fiscal impact on our organization is significant, the greater travesty lies in what this means for our patients, particularly the more than 15% who rely on Medicaid,” said Reese Jackson, president and CEO.

That’s because the bill changes how Virginia pays for its share of Medicaid expansion.

In Virginia, for traditional Medicaid that encompasses coverage for children, pregnant women, and people with disabilities who meet certain income requirements, the state and federal government more or less equally share a funding responsibility.

The cost of Virginia’s Medicaid expansion population, which includes low-income adults, is funded 90% by the federal government, meaning the state’s share is 10%. Importantly, the state government does not pay that share itself. Instead, acute care hospitals are taxed through what’s known as a provider assessment, and a portion of that tax funds the state’s entire share of Medicaid expansion costs.

As part of the One Big Beautiful Bill Act’s sweeping cuts to social safety net programs, the provider tax, currently at the highest allowable rate of 6% of net patient revenues in Virginia, will be gradually reduced to 3.5%, beginning in 2028 with a 0.5% decrease annually until 2031.

Rural hospitals, some of which rely on as much as 30% of their revenue from the provider tax, are the most at risk. But other hospitals could be impacted, too. In Hampton Roads, the provider tax generates between 11% and 20% of hospital revenue.

Jackson noted Chesapeake Regional receives significantly lower reimbursement rates from commercial insurers compared to other regional hospitals.

“This discrepancy places an undue burden on our health care system and makes it even more difficult to sustain critical programs that serve our most vulnerable populations,” Jackson said.

In 2025, acute care hospitals subject to the provider tax are expected to generate $570 million toward the state share of Medicaid expansion. The Virginia Hospital and Healthcare Association estimates that at full implementation, changes to the provider assessment rate and changing state-directed payment plan provisions would cost Virginia hospitals more than $2 billion annually.

“A curious person might ask the entirely valid question of, ‘if they’re reducing the tax rate, why is that a bad thing, why is that harmful?” said Julian Walker, vice president of communications with the VHHA. “The answer is if that tax rate is being used to generate proceeds to support expansion and to draw down Medicaid supplemental payments, and you reduce the tax ceiling, that means that the financial strength of that mechanism is diminished.”

The provider tax also goes toward state-directed payments, which draw down federal dollars to supplement Medicaid payments. Medicaid reimburses providers at less than the cost of care. As an example, if it costs one dollar to provide care for a patient, Medicaid might reimburse $0.78 of that cost.

“It’s a payment to help close that financial gap, and it’s funded through a tax on hospitals,” Walker said.

A reduction in the provider tax also could impact how much revenue hospitals are able to generate. Larger hospital systems with more revenue pay a greater share of the tax, but the allocation of resources is based on the share of Medicaid patients that a hospital serves, Walker said.

“A significant share of the benefit from this mechanism is actually going to the hospitals that are serving the greatest number of Medicaid patients,” he said. “We see this as troubling, disturbing and potentially devastating. This is funding that helps hospitals sustain their operations, support patient access to care, strengthen the state and local economy, and provide employment across Virginia.”

Under a lower provider tax, the question becomes “How do hospitals make up the deficit?” said Larry Clark, an internist in Alexandria, at a news conference held last week in Richmond to discuss the cuts.

“Are they going to cut the services? Are they going to cut the first things that usually get cut, your critical care units in the emergency room?” Clark said.

Proponents of limiting the provider tax describe the mechanism as a scheme whereby states return funding from the tax to providers through directed payment plans in an endless loop, and neither the state nor the providers spend new money on Medicaid. And, they cite cost savings: An estimate from the Congressional Budget Office found that reducing the tax threshold on providers to 5% results in $48 billion in federal savings over 10 years.

According to the CBO, that’s because states would reduce some of their Medicaid spending, and people would as a result be forced off of Medicaid.

As an alternative to boost rural health care, Republicans included in the Senate version of the reconciliation $50 billion, spread over five years, for a Rural Health Transformation Program. But an analysis from Manatt and the National Rural Health Association found that the initial $25 billion would not go exclusively to rural hospitals, and if it did, would not necessarily close the gap in revenue cuts. It’s not clear if an additional $25 billion would solve the problem.

Democrat politicians and advocates held the news conference Thursday to discuss the impacts of the cuts.

“I helped expand Medicaid in Virginia,” said Rep. Jen McClellan, who represents Richmond and its surrounding counties. “One of the reasons that several Republican lawmakers got on board was that they knew how expanding Medicaid would help our rural hospitals …The new law, the big, ugly bill will now restrict hospitals’ ability to fund Medicaid and get reimbursed for the services they provide to Medicaid patients.”

“This bill is the biggest cut to health care in our lifetime,” said State Sen. Ghazala Hashmi, who is the Democratic nominee for lieutenant governor. “State budgets alone cannot make up the devastating loss.”

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