In Healthcare: 10 Issues where States are Accelerating Policy Changes

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In Healthcare: 10 Issues where States are Accelerating Policy Changes

In the United States, laws that define how our health system operates have evolved over our 250-year history. They’re built on allopathic medical pedagogy borrowed from our European roots and evolve around clinical innovations and technologies that improve outcomes and extend life.

Historically, federal agencies oversaw its evolution: the Departments of Health and Human Services (providers, insurers, drugs) Justice (antitrust), Federal Trade Commission i(interstate commerce, marketing practices) were primary actors with Agriculture (food supply) and Interior (natural resources) playing support roles. And the federal court system adjudicates challenges. But that’s changing: states are playing a bigger role. State attorneys general and Supreme Courts are pulled in more frequently.

Since the Supreme Court’s 2022 ruling in Dobbs v. Jackson Women’s Health Organization that overturned Roe v. Wade, healthcare issues have become more prominent in state lawmaking. That decision essentially delegated abortion rights to states to handle. And, in HR1 (One Big Beautiful Bill Act 2025), Congress cut federal Medicaid funding by almost $900 billion over 10 years essentially forcing states to find different ways to manage it. Today, Medicaid is 30.7% of the average state’s expenditures with half sourced from state general funds. OB3 will add fiscal pressure to every state.

In Campaign 2026, healthcare referenda will appear alongside candidates match-ups on many state ballots. Candidates in the 36 Gubernatorial/Territorial races and every Congressional race face questions about how they’ll “fix” healthcare. The combination of the public’s discontent with Congress and its dissatisfaction with the health system will prompt states to address a widening range of healthcare issues of consequence to their citizens. For some issues, Governors will issue Executive Orders, for others, referenda will appear on voter ballots and in others, legislation will be approved by their legislatures. The list is long…

  • Expansion of price transparency (PT) requirements for hospitals, insurers and (likely) physician services: Increased stipulations to increase awareness and use of pricing tools beyond current regulations.
  • Limitations on private equity ownership: States may require disclosures of private equity investments and many will seek modification of carried interest, clinical autonomy and governance structures.
  • Scope of practice expansion: States are expanding clinical responsibilities for advanced practice nurses, pharmacists and others to enable access to primary and preventive health services.
  • Prior authorization and payment integrity: States will require insurers to adopt business practices that reduce enrollee and provider challenges, financial shortfalls and disputes. In tandem, states will expand payment integrity alignment with evidence-based practices that reduce unnecessary care.
  • Implementation of site neutral payment policies: Despite federal pushback, states will align with employers and insurers to expand site neutral payment policies opposed by hospitals.
  • Re-calculation of community benefits and limitations on tax exemptions: Large, NFP systems will face state and federal regulatory pressure to forego/limit tax exemptions.
  • Price controls on prescription drugs (above and beyond most favored nation stipulations): States will enact legislation creating Drug Price Control Commissions to limit drug price escalation. In some, importation and restrictive formulary strategies will be enacted/expanded.
  • State constraints on PBM and GPO activity: States will advance business practice restrictions on PBMs and GPOs geared to consumer protections, greater transparency and increased competition.
  • Relief of Stark, Physician Self-Referral Limitations: Some states will expand physician ownership arrangements and enable physicians to compete with hospitals and other providers.
  • Integration of social services with local delivery systems: States will facilitate delivery systems in which public health and provider services are fully integrated and population health management improvement is optimized.

The bottom line:

Total state spending on for healthcare services increased 5.7% to $3.2 trillion in 2025 slightly more than the 38-year average of 5.6%. In fiscal 2025 federal funds to states rose 5.5% following three consecutive years of decreases from fiscal 2022 to fiscal 2024. Thus, states were forced to provide more funding for their healthcare programs even as the U.S. economy sputtered and, most recently, as affordability issues mounted for voters.

Healthcare’s future in the U.S. will continue to be framed by federal policies and the political system from which its laws originate, but its transformational changes will increasingly originate in states where affordability, funding and system effectiveness issues are tackled head-on.

Hospitals Face Rising Financial Risk as ACA Enrollment Falls

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The loss of millions of ACA marketplace enrollees will likely force hospitals to confront a growing share of uncompensated care and rising bad debt.

KEY TAKEAWAYS

ACA marketplace enrollment is projected to fall by 21.5% this year after enhanced premium tax credits expired, with more consumers choosing lower-premium, higher-deductible plans.

Hospitals could face growing financial strain from underinsured patients who carry coverage but delay care or struggle to pay large out-of-pocket costs.

The coverage shifts may disrupt payer mix forecasting, value-based care strategies, and revenue cycle performance at a time when hospitals are already navigating elevated costs.

The expiration of enhanced Affordable Care Act (ACA) subsidies is expected to significantly impact the healthcare coverage landscape, and hospital leaders could feel the downstream effects soon.

Analysis from KFF projects ACA marketplace enrollment could fall by 21.5%, or nearly five million people this year, dropping from 22.3 million to about 17.5 million covered lives. At the same time, consumers who remain insured are opting for higher-deductible bronze plans as premiums climb.

For providers, the shift threatens to create more patients who carry insurance, but with deductibles so high that care is often delayed and collections become more difficult.

According to KFF, the average ACA marketplace deductible jumped 37% year-over-year, increasing from $2,759 in 2025 to $3,786 in 2026, marking the largest increase in marketplace history. Bronze plan enrollment climbed from 30% to 40% of all marketplace selections, while silver plan enrollment dropped from 57% to a record-low 43%.

The enrollment decline largely stems from the expiration of enhanced premium tax credits that had expanded affordability and helped drive marketplace enrollment to record highs over the last several years. KFF estimated that average monthly premium payments rose 58% from $113 to $178 after the subsidies expired.

That fluctuation in affordability could meaningfully change hospital utilization patterns.

Patients facing higher out-of-pocket exposure often postpone elective procedures or avoid preventive services altogether until their conditions worsen. For hospitals already contending with thin margins and persistent costs, a growing population of underinsured patients could create additional pressure on revenue cycles and charity care programs.

The impact could particularly be felt for hospitals serving middle-income populations that previously benefited from expanded subsidies. KFF found that individuals above 400% of the federal poverty level, or the “subsidy cliff” population, accounted for nearly half (48%) of the decline in marketplace plan selections despite representing just 7% of 2025 enrollment.

Hospitals in states that experienced rapid ACA marketplace growth during the enhanced-subsidy era may see the biggest disruption. KFF identified 41 states with enrollment drops, with the largest seen in North Carolina (22%), Ohio (20%), West Virginia (17%), and Indiana, Delaware, and Arizona (all 16%).

The trend could also affect strategic priorities for health system executives, particularly around population health management and value-based care models that depend on stable insurance coverage and consistent patient engagement.

If marketplace depletion continues through the rest of the year, especially as consumers fail to keep up with higher premium payments, hospitals may need to revisit forecasting models tied to payer mix, utilization, and uncompensated care.

KFF noted that effectuated enrollment, which measures consumers who pay their premiums and maintain coverage, could decline between 17% and 26% this year due to midyear attrition and unpaid premiums, based on estimates from Wakely Consulting Group.

As a result, hospitals may invest more in front-end financial screening or Medicaid enrollment assistance and community outreach efforts aimed at preserving coverage continuity.

The concern for hospital leaders is that the coverage shifts come at a time when many organizations are already operating with limited financial flexibility. While hospitals have shown signs of improved operational discipline, many organizations continue to struggle with elevated expenses. Kaufman Hall’s latest National Hospital Flash Report for March found that bad debt and charity per calendar day was up 18% year-over-year, partly offsetting financial progress.

Hospitals Are Operating More Efficiently, Yet Financial Performance Is Still Lagging

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Hospitals reduced expenses and improved throughput in March, but rising uncompensated care and worsening payer mix are limiting margins, Kaufman Hall’s latest data reveals.

KEY TAKEAWAYS

Hospital margins improved in March, but year-to-date performance remains below 2025 levels despite operational gains.

Expenses declined month-to-month, potentially signaling short-term stabilization, though drug and supply costs are significantly higher year-over-year.

Health systems are being pushed toward targeted resource allocation and outpatient-focused service-line strategies.

Hospitals are showing signs of stronger operational discipline in early 2026, but those gains have yet to translate into meaningful financial growth.

While margins improved modestly and expenses dipped slightly month-to-month in March, hospitals continue to face persistent pressures like an eroding payor mix and a rise in uncompensated care that are offsetting operational progress, according to Kaufman Hall’s latest National Hospital Flash Report.

The average monthly operating margin, inclusive of health system allocations for the cost of shared services, increased from 1.8% in February to 2.9% in March. That jump pushed the adjusted year-to-date operating margins to 1.7%, up from 1.3% in February. However, Kaufman Hall’s data shows hospitals are well below 2025 levels overall, highlighting that recent gains have not been enough to reverse financial headwinds.

Expenses declined across the board on a month-to-month basis, suggesting some short-term stabilization after earlier increases. Decreases were seen in total daily expenses (4%), daily labor expenses (2%), daily non-labor expenses (5%), daily supply expenses (1%), daily drug expenses (1%), and daily purchased service expenses (8%).

Still, costs remain elevated on a yearly basis, particularly related to drugs (10%) and supplies (11%). Even with the March dip, expense relief has been uneven and not yet sustained enough to materially improve margins.

At the same time, hospitals continue to demonstrate incremental operational improvements. The report found a 2% reduction in average length of stay month-over-month and a 3% drop year-over-year. Meanwhile, daily outpatient revenue stayed flat in March but rose 12% year-over-year, indicating efforts to improve throughput and shift care to lower-cost settings. Adjusted discharges increased 4% year-over-year in March, and equivalent patient days per calendar day fell 3% month-over-month and 2% year-over-year, pointing to gains in capacity management and patient flow efficiency.

Less encouragingly, hospitals are still contending with higher levels of bad debt and charity care, which jumped 18% year-over-year, reflecting a worsening payer mix and ongoing challenges with government payers relative to commercial reimbursement.

“Hospitals continue to see the effects of payor mix erosion and cost pressures,” Erik Swanson, managing director and data and analytics group leader at Kaufman Hall, said in a statement. “Proactive steps to strategically allocate resources and manage spend, through areas such as length of stay, outpatient care and growing expenses, will continue to be key.”

Regional variation is also a defining feature of the current environment. The Northeast posted margin improvement despite historically weaker financial performance, while hospitals in the West saw the most pronounced increases in drug expenses. Those two outliers showcase the uneven cost and revenue forces across markets.

For hospital leaders, the latest data is further evidence that operational improvement alone is unlikely to fully restore margins right now. Many health systems have already spent the past several years striving to improve efficiency in areas like staffing and throughput, meaning future gains may be harder to achieve through traditional cost-cutting alone.

Instead, executives must prioritize more targeted resource allocation and service-line strategy, especially as hospitals invest more in outpatient settings.

Why Atlantic Health’s CEO Is Treating Innovation as a ‘Cultural Shift’

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Saad Ehtisham says the nonprofit health system is looking beyond typical ROI benchmarks for determining worthwhile investments in AI and digital tools for operational growth.

KEY TAKEAWAYS

Atlantic Health views innovation as an organizational and cultural transformation effort rather than simply a technology initiative.

The system’s AI investments are focused on reducing friction across care delivery, including clinician documentation burden and patient scheduling delays.

CEO Saad Ehtisham sees workforce resilience and consumer access as long-term strategic returns, alongside traditional financial performance metrics.

For many health systems, innovation has become shorthand for digital expansion and AI deployment designed to create a return on investment. At Atlantic Health, president and CEO Saad Ehtisham frames that approach in another way.

“We’re looking at innovation much differently than most systems are and not as a tool, but as a cultural shift,” Ehtisham told HealthLeaders.

That philosophy is driving the New Jersey-based health system’s use of technology to improve workflows for clinicians while simplifying access for patients.

Investment, according to Ehtisham, is flowing into ambient listening tools, workflow automation, digital scheduling capabilities, and AI applications aimed at reducing friction across care delivery.

A Happier Workforce is a Better Workforce

One of Atlantic Health’s biggest strategic priorities involves workforce sustainability.

The system has emphasized upskilling employees and encouraging leaders to think beyond traditional operational silos, Ehtisham highlighted. The organization wants managers and staff members to develop enterprise-level understanding that allows them to grow internally rather than looking for opportunities outside the system.

“What we want to do is make sure our team members don’t stay in the vertical expertise that they’re framed in, but they have the ability to cross-train into a different vertical and be able to grow in their acumen,” Ehtisham said.

Technology investments have become integral to that workforce strategy.

Atlantic Health recently piloted ambient listening tools that document physician-patient conversations during appointments. While many organizations evaluate those platforms through productivity or revenue gains, Ehtisham is more interested in the impact on clinician experience and long-term sustainability.

“How does that make our clinicians’ and physicians’ lives a lot easier and their flow throughout the day?” Ehtisham said. “Does that reduce their pajama time where they can spend more time with their families instead of having to be in their computers?”

Atlantic Health is also exploring agentic AI capabilities that can respond to certain administrative patient questions through Epic’s MyChart platform. The goal is to reduce after-hours inbox management that contributes to physician burnout.

“It is increasing the resilience of our physicians and that will in turn increase their ability to want to practice longer and want to be with the system,” Ehtisham said. “So that’s our ROI. And I don’t think you can put a dollar value on that. You probably could, you get a mathematician, you can quantify that through some algorithm. I would rather not.”

That same mindset has influenced nursing operations.

Atlantic Health has deployed robots capable of retrieving supplies and handling tasks that frequently pull nurses away from bedside care, Ehtisham noted.

“Twenty-five percent of the time our nursing or any nurse in any health system is spending is non-patient facing,” he said.

By supplementing those activities through automation, the system can allow its team members to focus on taking care of the patient and performing at the top of their license.

As Ehtisham puts it, staff are more likely to produce 150% output if they’re working at 90% of their capability from a resource intensity standpoint, and happier in what they do.

Pictured: Saad Ehtisham, president and CEO, Atlantic Health.

Opening the Digital Front Door Wider

Atlantic Health’s innovation strategy extends into consumer access.

One of the earliest operational changes implemented under Ehtisham involved measuring the next available appointment within 30 days across clinics and reducing delays that prevented patients from getting timely care.

“That was one operational lever we pulled early on,” he said.

According to Ehtisham, improving appointment access generated gains in consumer experience while contributing to stronger financial performance.

“We’re beginning to see it from consumer experience,” he said. “They’re much happier being able to get in when they want to be seen.”

The system is now experimenting with on-demand self-scheduling capabilities designed to better connect patients with its ambulatory infrastructure.

Atlantic Health continues to expand outpatient locations anchored around primary care as well. Many of those sites include rotating specialty services, imaging, laboratory capabilities, and physical therapy offerings intended to create centralized outpatient destinations.

The organization’s digital ambitions also include patient-facing AI applications.

Ehtisham said Atlantic Health is looking at developing its own version of Claude or ChatGPT, capable of guiding consumers toward the appropriate level of care based on conversations occurring through the platform. He envisions systems eventually using those interactions to direct patients toward physician appointments or virtual visits while simultaneously transferring relevant information into the clinical workflow before the encounter begins.

“We know consumers are going on those platforms and typing in, ‘I have this, what should I be?’” Ehtisham said. “That’s a platform that’s being engineered by non-healthcare providers systems. We’d rather get into that technology.”

Keeping Financial Discipline in Focus

Even as Atlantic Health expands technology investments, Ehtisham acknowledged the tension many health systems face when balancing the pursuit of innovation with financial realities.

“Healthcare is the only place where you bring in technology, the cost goes up versus going down,” he said. “We’re trying to invert that thinking.”

That influences how Atlantic Health approaches vendor relationships and operational deployment. Ehtisham said the system prefers working more deeply with select partners capable of improving workflows end-to-end, rather than as a one-off.

He pointed to operational throughput as one example. The organization is evaluating how technology can reduce bottlenecks beginning in the emergency department and continuing through inpatient discharge processes. Smoother patient flow can improve experience while generating financial yield through shorter lengths of stay, Ehtisham stressed.

“It starts creating this pipeline of revenue streams and future predicted models that’s going to be coming through market share that you’re going to be gaining over time,” he said. “It doesn’t happen overnight. But you have to commit to what you’re trying to do.”

Innovation can’t happen without resourcing though, which is why Atlantic Health has dedicated annual capital dollars specifically toward technology investments tied to operational improvements.

“It’s more of a derivative,” Ehtisham said. “You’ve got to generate so much operating margin in order to invest in that,” creating a direct link between financial discipline and innovation capacity.

Why Hospitals Are Targeting Leadership, Administrative Jobs in Latest Layoffs

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As financial challenges persist and clinical labor remains difficult to replace, many hospitals are turning to restructuring for cost savings.

KEY TAKEAWAYS

Care New England, Washington Regional Medical System, and Intermountain Health all announced layoffs that prominently affected administrative functions.

Hospitals are increasingly embracing “The Great Flattening,” consolidating nonclinical roles to reduce overhead while preserving frontline care capacity.

While leaner organizational structures may improve efficiency and speed decision-making, reducing leadership layers can also create operational strain and place added burden on remaining staff.

Three notable health systems announced layoffs in recent days, and in all three cases, management and leadership roles were largely affected. Even as labor costs continue to climb, clinical talent remains scarce, making administrative jobs often the primary target of workforce reductions.

Healthcare, and hospitals specifically, are not immune to “The Great Flattening” impacting corporate America. Companies across industries have spent recent years trimming down middle management, if not outright eliminating those positions, for the purpose of creating leaner workforce structures and cutting overhead.

In the case of hospitals, many have taken the step to consolidate functions that aren’t directly tied to delivering patient care.

The trend became particularly visible over the past week with Care New England, Washington Regional Medical System, and Intermountain Health all initiating reductions.

Providence, Rhode Island-based Care New England eliminated more than 30 leadership and nonclinical positions as part of a restructuring to address financial pressures and help close an estimated $20 million budget gap for fiscal year 2026. System president and CEO Michael Wagner said in a statement that “current financial conditions have made additional cost-saving measures unavoidable.”

Elsewhere, Washington Regional Medical System announced a restructuring plan that included 86 job cuts through consolidation of management and support functions. “By restructuring our management operations and consolidating roles, Washington Regional will reduce redundancies and optimize efficiency while still providing the high-quality care our community has come to expect,” Lucas Campbell, president and CEO of Washington Regional, said in the announcement.

At Intermountain Health, the 93 positions that were eliminated amid clinic closures and operational changes in Colorado and Montana looked a little different. While clinical roles were affected as part of the restructuring, the organization also pointed to leadership and administrative consolidation to improve efficiency and better align resources.

Though the circumstances surrounding the three systems differed, the overlap across the layoffs was the emphasis on leadership restructuring and administrative streamlining.

The logic behind these restructurings is straightforward: clinical workers are difficult to replace, whereas administrative costs often represent one of the few areas where organizations can still reduce spending relatively quickly.

According to Kaufman Hall’s latest National Hospital Flash Report for March, hospitals are operating more efficiently, but financial performance is still being weighed down by rising expenses. Length of stay, for example, was down 3% year-over-year, indicative of improved throughput. However, that clinical efficiency requires adequate staffing, and that labor is costly, as seen in a 4% rise in labor expense per calendar day year-over-year.

To just maintain their thin margins, hospitals are being forced to cut costs in areas that won’t directly hinder patient flow. That’s why administrative restructuring is often viewed as a less disruptive path toward reducing overhead while sustaining operational efficiency.

The result can also be a faster decision-making structure, allowing organizations to be strategically nimbler during a time when moving slow can leave hospitals behind the curve.

Still, the benefits come at a price. The loss of leadership and management may not be felt in financial performance immediately, but over time, it can create operational strain and place additional burden on remaining leaders and frontline staff.

For hospital executives, the question they must answer is how far their organization can streamline before efficiency gains start to create new organizational pressures.