Shares of major U.S. hospital operators came under pressure in premarket trading Monday, after a fresh analysis from Bank of America (BofA) suggested that the Senate’s newly revised reconciliation bill could pose greater financial risks to the sector than previously expected.
The updated legislation, which passed the Senate on June 28, includes provisions that reintroduce provider tax cuts and maintain planned reductions to Medicaid’s state-directed payment programs (DPPs). According to BofA, these measures could significantly affect hospital income streams.
Early trading reflected investor unease: Tenet Healthcare (NYSE:THC) dropped 2.3%, HCA Healthcare (NYSE:HCA) lost 0.9%, and Acadia Healthcare (NASDAQ:ACHC) slipped 0.4%.
While the bill still faces potential amendments before reaching the House, analysts noted that even if lawmakers soften the impact of provider tax cuts in the final version, reductions to the DPP structure appear likely to remain. These changes would effectively scale Medicaid reimbursements back to Medicare levels in states that expanded Medicaid under the Affordable Care Act, and to 110% of Medicare in non-expansion states beginning in 2027.
Although the timeline for provider tax reductions has been delayed to begin in 2028—one year later than originally proposed—the legislation still plans to lower rates incrementally to 3.5% by 2032.
BofA identified Tenet Healthcare (THC) as the most vulnerable to these tax changes due to its reliance on higher provider tax revenue, followed by HCA Healthcare (HCA) and ARDT. In contrast, Universal Health Services (NYSE:UHS) was seen as having the least exposure to the proposed revisions.
However, analysts emphasized that the greater concern lies in the potential overhaul of Medicaid DPPs. If enacted, the changes would cut into one of hospitals’ key revenue sources, particularly for those in states with higher Medicaid utilization. BofA described the impact as “material” for the sector.
Given the potential headwinds for acute-care hospitals, BofA is now favoring post-acute care companies, naming Encompass Health (NYSE:EHC) as its top choice in the space.