One Big Beautiful Bill Act (OBBBA): Hospital reimbursement and Medicare payments

New estimates from DataGen highlight $1.9B in physician payment increases — and a looming $98B Medicare cut 

The One Big Beautiful Bill Act (OBBBA) — a major budget reconciliation bill passed by the U.S. House of Representatives in May — is now in the hands of the Senate. While the legislation covers a wide range of national issues, several key Medicare fee-for-service (FFS) provisions could have a direct and lasting impact on hospitals and health systems. 

At DataGen, we’re updating our Potential Changes analysis to reflect the latest proposed policy shifts. Because OBBBA has Medicare FFS implications, DataGen analyzed the impact of these major areas. Here’s a preview of what we’re seeing so far — and what hospital leaders need to keep on their radar: 

1. update to physician Medicare payments using Medicare Economic Index (MEI); 

2. 4.0% Pay-As-You-Go (PAYGO) OBBBA sequestration reduction; and 

3. Medicare Disproportionate Share Hospital uncompensated care impact. 

1. Physician payment updates tied to MEI 

Estimated national impact: +$1.94 billion to Medicare physician payments over 10 years for non-APM physicians and -$1.99 billion for physicians involved in APMs. 

These impacts reflect a change to the annual multiplier used to update the Medicare Physician Fee Schedule (MPFS) conversion factor. Beginning in calendar year 2026,  physician payments are slated to increase annually by 0.75% for Alternative Payment Model (APM) participants, and by 0.25% for nonparticipants.  

The OBBBA would change this such that in CY 2026 the conversion factor would instead receive an update factor equal to: 

• 75% of the annual MEI value in 2026 

• 10% of the MEI value in subsequent years 

This is estimated to be a $1.94 billion increase to Medicare physician payments over 10 years, assuming physicians do not participate in APMs. Assuming all physicians participate in APMs, a $1.99 billion decrease to Medicare physician payments over 10 years is estimated. 

2. The return of the 4.0% PAYGO sequester 

Estimated national impact: $98.3 billion reduction over 10 years (2026-2035). 

For the first time since the Statutory Pay-As-You-Go (PAYGO) Act of 2010, Congress may allow the full 4.0% sequestration cut to take effect, starting in 2026. This change would significantly reduce total Medicare FFS payments across the board.  

Note that this is the maximum amount by which Medicare payments may be reduced by this Act because of deficits incurred through legislation passed during a given year. In all years prior to 2025, for purposes of PAYGO, Congress has voted to either ignore or delay the effect of deficits incurred by legislation (estimated to be a $98.3 billion reduction for the country over the next 10 years for Medicare FFS). This reduction would be in addition to the 2.0% sequestration cut to providers currently in place. 

3. DSH UCC payments could rise 

Estimated national impact: +$6.5 billion for hospitals in 2034-2035. 

Starting in 2034, the OBBBA will increase the national uninsured population by 16 million. Our impacts reflect the estimated changes to the national UCC payment pool amount based on projected increase of 16 million people to the national uninsured population starting in 2034 resulting from the OBBBA, as provided by the Congressional Budget Office and combined with CMS’ Office of the Chief Actuary projections.  

Hospital-specific impacts due to changes in patient population (i.e., Medicaid DSH and UCC percentages) are not included in these impacts (estimated to be a $6.5 billion increase in impacts for hospitals for 2034 and 2035). 

What comes next 

Our full Potential Changes analysis — powered by DataGen’s Medicare FFS Policy Analytics — provides hospital-specific modeling to help organizations prepare for major payment shifts. As the OBBBA moves through Congress, understanding the possible financial exposure or opportunity is key to strategic planning. 

We’ll release updated impact models if the bill’s provisions are finalized. In the meantime, our team is here to help hospitals and health systems evaluate risk and forecast the future. 

Learn more about DataGen’s Medicare FFS Policy Analytics and how we help you anticipate the dollars behind federal decisions.