Hospital profits from Medicaid face GOP scrutiny amid budget push

GOP eyes hospital Medicaid windfalls in bid to cut federal spending

Universal Health Services and peers face growing risk as Congress revisits provider tax system

Republican lawmakers searching for deep federal budget cuts have turned their attention to a highly lucrative — and controversial — funding stream: supplemental Medicaid payments that significantly boost hospital profits. At the center of this debate is Universal Health Services (UHS), whose earnings rely heavily on such government payments.

In 2023, UHS received $1 billion through state-directed Medicaid payment programs, accounting for 68% of its pretax income. These payments came without corresponding expenses, making them a direct contributor to bottom-line profit. Analysts had expected similar figures this year, but those assumptions now face significant political headwinds.
 

Hospitals bet on sustained federal outlays — a risky move

UHS and Wall Street analysts have maintained a bullish stance on continued Medicaid funding, even amid a growing push from Republicans to curb government spending. This optimism is increasingly viewed as a high-risk bet, especially as House and Senate Republicans press for a long-term reduction in the federal deficit.

The recently passed congressional budget resolution tasks the House Energy and Commerce Committee with identifying $880 billion in savings over the next decade — much of which is expected to come from Medicaid, which currently represents 9% of federal expenditures.

UHS and the provider tax loop

The structure of supplemental Medicaid payments has raised bipartisan concerns for years, due in part to the "circular" financial arrangement that enables hospitals to receive enhanced payments. Under the current model, states levy taxes on providers, then use those funds to draw matching federal dollars — which are subsequently returned to hospitals through inflated Medicaid reimbursements.

Critics, including former Trump administration adviser Brian Blase, have called this system “legalized money laundering.” In a March report for the Paragon Health Institute, Blase wrote that Medicaid was never intended to serve as “a slush fund for politically connected providers.”

The issue has been further complicated by UHS’s high-profile leadership. The company is controlled by billionaire founder Alan Miller and his family, including current CEO Marc Miller. Their tight grip on UHS has drawn the attention of lawmakers looking for a symbol of excess within the healthcare system.
 

Political optics and hospital lobbying

Hospitals like UHS, Tenet Healthcare, and HCA Healthcare could be exposed if lawmakers pursue reforms limiting Medicaid reimbursement rates or outlawing provider tax schemes. While Tenet and HCA are less dependent on these payments than UHS, all would feel the impact of major policy shifts.

UHS CFO Steve Filton defended the payments on the company’s latest earnings call, stating they compensate for historically low Medicaid reimbursement rates. However, arguments based on retrospective fairness may not sway lawmakers focused on future cost savings.

Despite GOP enthusiasm for trimming Medicaid growth, the party faces internal divisions. The program currently covers nearly 80 million Americans — many of whom are rural or low-income Trump supporters. Additionally, hospital lobbying groups have long held considerable sway in Washington.
 

Outlook: Legislative gridlock or funding retool?

Republicans hold narrow majorities in Congress, making sweeping Medicaid reforms politically delicate. Still, even modest congressional action could be followed by deeper administrative cuts, should the Trump administration seek to retool Medicaid from within the executive branch.

A potential reform scenario could involve placing caps on Medicaid payment rates to prevent them from exceeding those paid by Medicare — a move that would severely constrain revenue growth for providers like UHS.

While nothing is certain, the renewed spotlight on provider tax structures signals mounting pressure on hospital operators who have benefited from federal funding practices now seen as unsustainable.

Investors who have long considered hospital stocks a stable play may soon find themselves exposed to a volatile mix of policy risk and political scrutiny.

Stay tuned to The Horizons Times for continuing coverage of U.S. healthcare financing and the political battles shaping the future of Medicaid.