A New Era of Medicaid Reform

Opportunities and Risks for Investors

One Big Beautiful Bill Act “OBBBA” introduces the most significant Medicaid reforms in decades. For investors and operators, these changes will have far-reaching effects — from margin pressure and coverage volatility to longer-term opportunities driven by consolidation, care innovation and technology investment. Those who take this moment to review portfolios, stress-test business models and design forward-looking strategies that anticipate where capital and capability need to shift next will be in a strong position to uncover opportunities for growth.

Why It Matters for Investors

Work requirements, six-month redeterminations and tighter verification rules will disrupt continuity of coverage for millions of beneficiaries, driving uncompensated care and straining already fragile provider margins. At the same time, new federal investments, from rural health transformation to Home and Community-Based Services (“HCBS”) expansion, will redirect billions of dollars into technology infrastructure and new models of care delivery. These reforms will create widespread disruption and reshape the healthcare landscape.

Provider Pressure Ripples Across the Ecosystem
Hospitals with heavy Medicaid exposure face financial headwinds from reductions in provider tax flexibility, tightening rules on state-directed payments and a growing burden of uncompensated care. This creates systemic risk for rural hospitals and safety-net providers.

Paradigm Shift in the Consumer Access Landscape
Strict work requirements and six-month redeterminations will create coverage gaps for vulnerable populations, driving emergency care utilization. Consumers with means will increasingly look outside of traditional systems and coverage for access.

New Care Delivery Models Will Emerge
Hospital consolidation and closure will likely fuel virtual-first solutions, home-based care, community hubs and ambulatory specialty centers. The $50 billion Rural Health Transformation Program and expanded HCBS waivers will incentivize hybrid and distributed care approaches.

Technology as the Tipping Point
State and MCO success will hinge on technology. Congress has appropriated $400 million for state and federal systems modernization and $75 million to implement six-month eligibility redeterminations in FY 2026 to support this transition.¹

By the Numbers

The reconfiguration of care delivery creates both risks and opportunities, requiring PE firms to identify where to double down, assess portfolio exposures and capture growth in markets reshaped by disruption.

11.7% to 13.3% – Reduction in operating margins for hospitals in Medicaid expansion states.²
25.9% to 29.6% – Reduction in operating margins for safety-net hospitals in Medicaid expansion states.³
4.6 million to 5.2 million: Adults estimated to lose Medicaid coverage if work requirements mirror Arkansas and New Hampshire experiences.⁴

Emerging Investment Opportunities

Amid sweeping Medicaid reform, disruption is giving rise to opportunity, creating new pathways for PE to fuel efficiency, expand access and diversify growth across three areas:

Healthcare Information Technology

Eligibility and Verification Systems: AI and automation overlays that plug into state and federal infrastructure can streamline workflows, reduce manual errors and represent white space for investment.
Member Engagement Platforms: Digital platforms that deliver personalized reminders, mobile-first communication, multilingual support, and case management services are essential to keep members enrolled and reduce churn.
Workforce Platforms: As care delivery expands beyond hospital settings, demand is increasing for flexible and scalable staffing solutions. Platforms that dynamically allocate staff across settings will be especially valuable, ensuring coverage across diverse geographies and care models.

Alternative Care Models

Virtual and Home-Based Care: Virtual care and home-based models are critical to filling the supply gap created by hospital pressures. Opportunities exist to scale telehealth platforms, hospital-at-home solutions and tech-enabled home health models.
Rural and Community Care Delivery: The $50 billion Rural Health Transformation Program creates funding tailwinds for telehealth hubs, mobile clinics, community kiosks and back-office outsourcing serving rural providers.

Non Medicaid Diversification Plays

Concierge and Employer-Direct Care: Higher-income consumers increasingly bypass traditional systems for concierge primary care, employer-direct contracts and self-pay specialty services. These models can offer PE firms stronger margins, lower reimbursement risk and faster scalability than Medicaid-dependent models.
Ambulatory Specialty Centers (“ASCs”): Ambulatory surgery centers, behavioral health clinics and specialty providers are well-positioned to capture patients who are willing and able to bypass the traditional system and reimbursement landscape. Ambulatory surgery and specialty centers in high-demand areas such as orthopedics, women’s health, behavioral health and gastrointestinal may represent particularly attractive opportunities.

Footnotes:

1: Kaiser Family Foundation, “Tracking the Medicaid Provisions in the 2025 Reconciliation Bill,” KFF (8 July 2025).

2: Randy Haught et al., “The Impact of Proposed Federal Medicaid Work Requirements on Hospital Revenues and Financial Margins,” Commonwealth Fund, (September 18, 2025).

3: Haught, Randy et al., “The Impact of Proposed Federal Medicaid Work Requirements on Hospital Revenues and Financial Margins,” The Commonwealth Fund (September 18, 2025).

4: Karpman, Michael, Jennifer M. Harley and Genevieve M. Kenney, “Assessing Potential Coverage Losses among Medicaid Expansion Enrollees under a Federal Medicaid Work Requirement,” Urban Institute (March 17, 2025).