This article, written by Michael Ramey, Managing Principal of Strategic & Transaction Solutions, was originally published in The M&A Journal and reprinted with permission.
As President Trump signed into law the One Big Beautiful Bill Act (OBBBA), healthcare leaders nationwide braced for even rougher waters as they navigate the healthcare economic environment. Amid ongoing battles with commercial payers to cover rising costs, the federal [government]—the largest payer for healthcare services—has cut healthcare programs to pay for tax cuts (few of which benefit most health systems). Health systems are now re-evaluating transactional strategies while attempting to fully appreciate the law’s impact on revenue and expenses.
Key changes to federal healthcare programs
Legislators hotly debated Medicaid funding levels during passage of both the House and Senate versions of the bill. Republicans targeted the entitlement program early—both eligibility requirements and federal funding levels—to partially offset permanent tax reductions. In aggregate, the Congressional Budget Office (CBO) estimates federal spending on Medicaid and Affordable Care Act (ACA) Marketplace premium tax credits will reduce by $1.06 trillion over ten years, with the most significant contributions derived from Medicaid work requirements ($325.6 billion), other eligibility restrictions ($201 billion), freezes to Medicaid provider taxes ($191.1 billion), and cuts to state-directed payments ($149.4 billion).1 The CBO estimates 4.8 million Medicaid recipients will lose coverage just due to work requirements and the total number of uninsured individuals could increase by 10 million nationwide by 2034.2 An increased uninsured population leaves healthcare providers with lower reimbursement to cover costs of care, directly impacting operating margins.
Fewer Medicaid eligible patients can also affect hospitals’ eligibility for the 340B Drug Pricing Program, which allows eligible hospitals to purchase outpatient pharmaceuticals at reduced prices. For many non-profit hospitals and health systems with significant outpatient services, including oncology and infusion, 340B drug savings represent the difference in generating positive or negative income. Program eligibility is determined, in large part, by the disproportionate patient percentage, in which Medicaid patient days are a significant factor. For hospitals on the brink of the qualifying percentage, OBBBA’s eligibility requirements could result in the loss of 340B program participation. One study estimates over 300 hospitals risk losing 340B drug pricing due to stricter Medicaid eligibility requirements.3
For hospitals, location greatly influences OBBBA’s impact.4 As of July 4, 2025, all states are prohibited from enacting new or increasing existing provider taxes. States that expanded Medicaid will see reductions in federal matching funds beginning in 2028 as the cap on provider taxes is lowered over five years. Assuming these states do not make up the difference in new state spending on Medicaid, providers in these states likely will see reduced payments. Also, providers that have benefitted from state-directed payments (SDP) in the form of higher reimbursement rates will see those rates decline, as Medicaid reimbursement under SDP programs will be reduced by 1,000 basis points annually starting in 2028, until reaching caps of 100% of Medicare for expansion states and 110% of Medicare for non-expansion states.5
OBBBA’s aggregate addition to federal deficits also implicates the Statutory Pay-As-You-Go Act (S-PAYGO) of 2010, which triggers automatic spending cuts to certain federal programs, including Medicare. Absent Congressional action to exempt OBBBA from S-PAYGO’s requirements (which will require 60 votes in the Senate), Medicare sequestration will increase from current 2% to 4% in 2026. The CBO estimates $45 billion reduction in Medicare payments to providers in the next fiscal year due to the OBBBA-triggered increase in sequestration.6 This anticipated cut to Medicare payments increases uncertainty for health systems and investors.
Aside from OBBBA, other pronouncements coming from Washington, D.C. exacerbate uncertainty and risk to cash flow forecasts. These executive orders and proposed policy changes include enacted and proposed tariffs on pharmaceuticals and supplies, reductions in research funding to academic medical centers, expanded site neutral payments for hospital outpatient services, and a proposed rebate program for 340B, any of which could greatly impact hospital earnings.
Transactions impact
While uncertainty spiked in the healthcare transactions market leading up to OBBBA’s passage, the bill’s speed through Congress did not seem to materially stifle in-flight transactions. Heightened risk propositions have caused multiple community hospitals to explore partnership options. Conversely, some large health systems are seeking to diversify across state lines where OBBBA’s impacts may be muted.7
Health systems continue to view inorganic growth as a means to spread existing fixed costs across a broader portfolio, resulting in lower aggregate cost per adjusted admission to counterbalance lower reimbursement. In some states with newly enacted SDP programs, providers are using additional funds in the short term to invest in ambulatory services, including surgery centers, urgent cares, cancer centers, outpatient diagnostic centers, and physician practices. Investments in ambulatory services, including acquisitions and joint ventures, are expected to continue or accelerate while providers position to meet community needs in lower cost, more accessible settings than a hospital.
While deal volume may not be materially altered, changes in forecasted cash flows and elevated risk profiles should depress hospital valuations. This should result in delayed transaction closing in the short term as buyers and sellers recalibrate expectations in the wake of OBBBA’s passage. Sellers will likely see elongated due diligence timelines with more intense focus on quality of earnings considering these changes. Buyers should investigate and scrutinize all reimbursement sources, volume, and expense structures in seller provided projections to assess sustainability.
Additionally, in the wake of rising uncertainty, expect buyers to mitigate investment risk through alternative deal structures and terms including but not limited to earnouts, contingent consideration, installment payments, and joint ventures. When [pursuing] alternative deal structures, however, the parties will need to consider regulatory impacts depending on the nature of the transaction and whether the Stark Law or the Anti-Kickback Statute may be implicated.
For almost 25 years, The M&A Journal, published by John Close, has been a respected source of news about the people, law, and business of dealmaking. Download a PDF of Ramey’s article, which is also available by subscription.
PYA’s Transactions Support team helps healthcare organizations understand and respond to changes in financial, compliance, and operational conditions and develop strategies to minimize the risks of business transactions. With expertise in due diligence, valuation, forensic accounting, performance transformation, and integration management, our team can help your organization.
1 https://www.cbo.gov/publication/61570
3 https://www.pricepoints.health/p/obbb-340b
5 https://www.azaleahealth.com/blog/one-big-beautiful-bill-next-steps/
6 https://www.cbo.gov/system/files/2025-08/61659-SPAYGO.pdf
Key Takeaways and FAQ – Understanding OBBBA’s Effects on Healthcare M&A Transactions
Find clear, direct answers to key questions about how the OBBBA changes reimbursement, eligibility for 340B, valuation stress, and deal structuring in the healthcare merger and acquisition space.
What is the OBBBA and why is it relevant for healthcare organizations?
The OBBBA is federal legislation estimated to reduce federal spending on Medicaid and ACA premium tax credits by about $1.06 trillion over ten years. For healthcare organizations, this means increased uncertainty in reimbursement and higher risk in business transactions.
How does OBBBA affect eligibility for the 340B Drug Pricing Program and why does that matter in transactions?
Because the bill reduces Medicaid patient eligibility and changes state-directed payments, hospitals that rely on the 340B program may lose participation. Loss of 340B savings can significantly reduce margin, which in turn affects valuation and attractiveness in an M&A deal.
What is the anticipated impact of OBBBA on hospital valuations and deal timelines?
While deal volume may not drop materially, changes in forecasted cash flows and elevated risk profiles should depress hospital valuations. Sellers should expect longer due-diligence timelines, and buyers are likely to push for alternative deal structures.
Should healthcare providers rethink their M&A strategy now that OBBBA has passed?
Yes. Organizations must reassess assumptions about reimbursement, volume, and expense structures in light of the legislation. Whether proceeding with transactions or exploring partnerships, a more cautious strategic approach is required.
What should a buyer focus on when evaluating a target under the OBBBA environment?
Buyers should scrutinize all reimbursement sources and the sustainability of volume and expense assumptions. They should also consider alternative deal structures such as earn-outs, installment payments, or joint ventures that hedge uncertainty.
How can a seller best position themselves for a transaction in the post-OBBBA environment?
Sellers should anticipate the impact of OBBBA on revenue and expense projections, produce robust documentation such as quality-of-earnings analyses and stress-tested models, and be open to flexible deal terms that reflect the new risk landscape.
