As the first quarter of 2025 concludes, healthcare leaders across the United States are grappling with significant policy changes introduced by the new presidential administration. In addition to shifts in Medicare and Medicaid, the leaked FY26 HHS passback proposal signals broader funding changes and program eliminations—developments that could reshape strategic priorities for both large integrated systems and vulnerable community providers.

Medicare & Medicaid:

Policy Overhauls & Financial Implications

In April 2025, President Trump signed an executive order directing HHS to work with Congress on changes to Medicare drug pricing. The order delays price negotiations for small molecule drugs by four years—aligning them with the 13-year timeline for biologics. While the move is intended to support innovation, it may lead to higher costs for health systems.
At the same time, House Republicans advanced a budget plan with $880 billion in proposed cuts over the next decade. Though not explicitly targeting Medicaid, the program may be affected due to its size within the federal budget.

Meanwhile, newly appointed CMS head Dr. Mehmet Oz has promoted the use of artificial intelligence in healthcare, claiming AI could outperform doctors in diagnosing conditions like diabetes and reduce systemwide costs.

Financial Pressures & Strategic Responses

Health systems began 2025 on uncertain financial footing. According to Becker’s Hospital Review, while operating margins stabilized in 2024, they remain thin. Gross revenue growth has outpaced expense increases, but sustaining this trend is crucial for financial stability.

Trinity Health reported an operating income of $36.7 million in Q1 2025, a significant turnaround from a $58.6 million loss in the same period the previous year. This improvement is attributed to increased patient volumes and favorable Medicaid funding changes in states like Iowa and Michigan.

Conversely, CommonSpirit Health posted a $331 million operating loss in Q1, despite a 10.7% increase in operating revenues. The system cited rising expenses, particularly in salaries and supply costs, as contributing factors.

Differentiated Impacts:

Large Systems vs. Community Providers

Large integrated health systems are leveraging their scale to invest in technology and diversify revenue streams. In contrast, community-based health systems, especially in rural areas, face heightened vulnerability. Potential Medicaid cuts could exacerbate existing challenges, leading to service reductions or closures.

Hospital merger activity has hit a record low in Q1 2025, as providers exercise caution amid regulatory uncertainties and economic volatility.

Strategic Priorities for the Remainder of 2025

Health systems are prioritizing cost containment, workforce optimization, and ambulatory care expansion. The shift towards outpatient services continues, with outpatient revenue per calendar day up 13% year over year in October 2024. However, supply and drug expenses persist as pressure points. The integration of AI into clinical and administrative functions is gaining traction. Dr. Oz’s emphasis on AI’s potential to enhance diagnostic accuracy and reduce costs underscores this trend.

Conclusion

As the healthcare landscape evolves under new federal policies, health systems must navigate financial pressures and regulatory changes with agility. Strategic investments in technology, workforce development, and care delivery models will be essential to sustain operations and fulfill their missions in an increasingly complex environment.