Nebraska became the first state to implement the Medicaid work requirements mandated by last summer’s One Big Beautiful Bill Act, marking the start of an estimated $1T of Medicaid cuts over the next decade. To understand what these cuts could mean for a typical hospital, we constructed a model that projects revenue and expense growth over the next decade across a few different scenarios. We found that, for a $300M hospital with a three percent operating margin, these Medicaid cuts could be the difference in ten years between barely breaking even and incurring a $25M operating loss. 

Even without Medicaid cuts, however, our simulated hospital’s margin is expected to deteriorate over the next decade. Using more conservative estimates of expense growth than we see in vivo, commercial and Medicare revenues will still struggle to keep up with expenses. For our simulated hospital to maintain its 3 percent margin in the face of Medicaid cuts, it would either have to increase its commercial revenue growth rate from 4 percent to 5.4 percent per year, or it would have to slow its annual labor expense growth from 3.5 percent to 1.8 percent. Of course, a hospital’s financials change dynamically, rather than as a product of isolated variables. What this model shows is how difficult a job hospital CFOs have, constantly fighting to stay above water as expenses grow continuously.