CEO Summary: As lawmakers debate the merits of President Donald Trump’s budget bill, it appears that Medicaid changes are on the horizon. For medical laboratories, three immediate areas to monitor include potentially decreased Medicaid recipients, federal cuts to Medicaid funding, and changes to cost sharing for individuals. This trio of factors could dent lab reimbursement revenue.
Clinical laboratory leaders likely have heard of the “One Big Beautiful Bill Act,” President Donald Trump’s 1,100-page budget legislation that is making its way through Congress. While the proposal’s final version is far from certain at this point, the potential of the bill to whack medical lab reimbursements is considerable and something that lab professionals must anticipate now, not later, experts say.
The bill covers a lot of ground, but one of the biggest areas of projected change is to Medicaid, with cuts totaling $880 billion over five years. The Medicaid cuts, as well as proposed changes to the Affordable Care Act (ACA), were met with pushback by Democrats and much of the healthcare industry.
In a statement, American Hospital Association President and CEO Rick Pollack said, “Our hospitals and health systems have significant concerns regarding the harmful Medicaid and Health Insurance Marketplace provisions currently included in the bill. The sheer magnitude of the level of reductions to the Medicaid program alone will impact all patients, not just Medicaid beneficiaries, in every community across the nation.”
Let’s look at how the projected changes to Medicaid are likely to impact clinical laboratories and diagnostic tests.
Three Buckets to Watch with Medicaid Cuts
Although there are 21 specific provisions across several categories, including Medicaid expansion, eligibility policies, financing, long-term care, and prescription drugs, Mike Ryan, a partner with law firm McDermott Will & Emery, cites three primary buckets that will affect labs.
Fewer Medicaid recipients. “Several of the provisions are likely to result in substantial losses of Medicaid coverage for individuals,” Ryan says. “If a lab has significant Medicaid revenues, it could start to feel the crunch if a meaningful portion of its patient population loses coverage and becomes uninsured.”
As Pollack noted, the impacts are expected to hit rural hospitals and healthcare providers especially hard.
Elizabeth Sullivan, a healthcare attorney at McDonald Hopkins, agrees that the number of Medicaid beneficiaries is likely to be reduced. “So, that means it is going to reduce many hospitals’ reimbursed care,” Sullivan says. “They’re going to be offering more charity care. I think that hospitals that continue to operate will operate with a reduction in their [Medicaid] reimbursement.”
Sullivan adds that hospitals will likely question their reference laboratories regarding fee schedules for send-out tests, looking for ways to decrease expenses.
Decreased federal funding. Several of the bill’s provisions are designed to cut federal spending on Medicaid. According to a KFF (formerly Kaiser Family Foundation) analysis, most reductions come from work requirements, more barriers to Medicaid enrollment and renewal, and limits on states’ ability to increase the state share of Medicaid revenues via provider taxes.
Ryan says, “Part of how Medicaid works is that states get federal matching funds, which they can then use to subsidize care in their states. Several of the provisions in the bill are intended to reduce the federal matching funds that are available to states.”
This would decrease the amount of money states pay providers. Ryan says that states basically have “two levers to pull. First, states can stop covering certain types of services to bring costs down. Second, states can reduce the payment rates below where they already are.”
Sullivan points out that, for laboratories, the likely effect of decreased Medicaid participants and decreased reimbursement or services will be a shift from primary care to emergency care. “If there is a significant reduction in Medicaid coverage, it’s going to be a lot more emergency department care. In those instances, some of that testing is going to be absorbed within the hospital labs, STAT testing, and things of that nature.”
Sullivan anticipates that reimbursement for advanced testing, typically costlier than routine assays, will likely be nonexistent. Also, hospitals may expect labs to match their levels of charity care.
Changes to cost sharing. The bill currently would require states to implement cost-sharing for individuals in Medicaid with incomes up to 100% of the federal poverty level, according to the Association of State and Territorial Health Officials (ASTHO). Cost-sharing would be capped at $35 per service or 5% of a recipient’s income. It would not apply to primary and preventive care. The bill also cuts federal financial assistance for states that offer healthcare to undocumented immigrants, except for children and pregnant women.
Cost sharing refers to things such as copayments, coinsurance, and deductibles. Ryan says changes here may “put the onus on labs to try to make up for the losses.”
What Should Labs Do to Prep for Medicaid Cuts?
As of this writing, a final budget could be days to months away and will likely differ from the original proposal. However, there are things labs can do now—and should continue to do—as the budget process unfolds.
Monitor various deadlines. Once a budget bill is finalized, many of the Medicaid changes will be rolled out over several years. For example, in the bill, the elimination of a temporary incentive for states that adopted expansion is scheduled for January 1, 2026, but cost-sharing changes that impose caps aren’t scheduled until October 1, 2027.
“Obviously, it’s critical to know those deadlines to understand how quickly labs might need to move,” Sullivan says.
Pay attention to states. Watch how each state adapts to changes in federal Medicaid policy. Ryan notes that the states will be the battleground for the changes. “A lot of these changes are going to flow down to the states in terms of the federally matching funds. What are states going to do? Are they going to make additional cuts across the board in the fee schedule, or are they going to limit services?”
Concentrate on insurance verification. Sullivan says, “Have a clear focus on insurance verification, looking at the lab’s current policies and procedures.” She observes that this was something laboratories struggled with during the COVID-19 pandemic, especially with the US Health Resources & Services Administration.
Sullivan referred to uncertainty over who was covered by Medicaid or other programs. Although different than the new budget plan, she says conceptually the pandemic situation was similar because labs ran COVID-19 tests in good faith and tried to settle up with payers later. “Some of those labs are subject to government audits now, and auditors argue the labs were obligated to determine if each individual had insurance.”
Analyze demographics. Clinical laboratories working across state lines are used to juggling different Medicaid rules, but with changes coming, things could get messier as each state negotiates and rolls out its own version. “Labs are going to have to focus on their client base and whatever health systems and providers they are serving,” Sullivan says. “They will need to analyze what is happening in the various states in which they are located, and how that might change Medicaid coverage.”
Don’t Lose Sight of Changes
At this time it’s unclear how potential Medicaid cuts will impact clinical laboratories.
Sullivan says, “There may be uncertainty as this is implemented. Labs will have to be cautious and thoughtful about what they’re doing and not think, ‘Okay, we’ll just figure it out later.’ The main thing is not to lose sight of it.”
States and Medicaid Reimbursement Rates Might Be in Flux
While federal law doesn’t cap Medicaid payments at Medicare or Clinical Lab Fee Schedule rates, it does impose limits. States can set their own rates, but Medicaid is generally expected to pay less. Excessively high payments can trigger federal penalties, despite the absence of a strict cap. Although it’s conceivable some states would kick in more money to make up anticipated federal Medicaid cuts, attorney Mike Ryan notes, “Where would the money come from?”
Watch for Affordable Care Act Changes
There are more than 40 health policy reforms in the massive One Big Beautiful Bill. Proposed changes in the reconciliation bill affecting Medicaid and the Affordable Care Act (ACA) subsidy would reduce federal spending by about $1.25 trillion over the next 10 years, according to the Congressional Budget Office (CBO).
With those cuts, the CBO predicts the bill would increase the number of uninsured by 10.9 million. That’s largely in the short term. Between the effects of the reconciliation bill and the expected expiration of the ACA’s enhanced premium tax credits, the CBO projects 16 million “more people will be uninsured in 2034 than would otherwise be the case.”
The enhanced premium tax credits, designed to assist people with lower and moderate incomes to afford health insurance acquired through the federal Health Insurance Marketplace, was expanded with the American Rescue Plan Act of 2021 and the Inflation Reduction Act of 2022. The two Acts will expire at the end of 2025 unless Congress extends them. The reconciliation bill does not extend these credits. If they expire, net premium payments are expected to increase significantly.