Gabrielle “Elle” Kalisz is the Program Manager at Paragon Health Institute. Gabrielle has worked in federal health policy for over five years, advancing free-market principles and partnerships.
Jackson Hammond is a Senior Policy Analyst at Paragon Health Institute. He has been active in the federal and state health policy space since 2017.
Prior to joining Paragon, Jackson was a health care policy analyst for American Action Forum (AAF). While at AAF, his work focused on payer issues including private insurance, Medicare, and Medicare Advantage. Furthermore, Jackson wrote extensively about the 340B Program and contributed to AAF’s research on a variety of drug pricing issues.
Critics of Medicaid reform often cite rural hospitals to block needed changes, even though the current system overwhelmingly benefits large, politically connected health systems. While concerns about rural care deserve attention, emotional appeals are often used to protect corporate welfare, not vulnerable communities.
The current Medicaid financing system—distorted by the impacts of Medicaid money laundering—funnels billions in wasteful spending to major hospital systems, while offering only token support to rural providers. Medicaid financing gimmicks like provider taxes and state-directed payments deliver windfalls to large urban institutions, not the rural facilities reform opponents claim to protect.
Cutting Through Misleading Claims from Hospital Lobbyists
Hospital lobbyists are flooding the airwaves with claims in one report commissioned by Senate Democrats that 300+ rural hospitals would be forced to close if proposed Medicaid financing reforms advance. These claims rely on misleading studies and questionable assumptions, not the actual legislation.
A report by the Center for American Progress (CAP) suggests nearly 200 rural hospitals are at “immediate risk,” but it’s not based on the provisions in the “One Big Beautiful Bill.” Instead, it projects hypothetical reductions to the federal medical assistance percentage (FMAP) that are not included in congressional proposals.
Similarly, the American Hospital Association (AHA)-touted Manatt study emphasizes the impact of removing coverage for non-citizens and assumes millions of able-bodied adults would forgo Medicaid coverage rather than meet modest work, education, or volunteer requirements. These assumptions ignore the reality that such reforms would allow rural hospitals to provide more focused support on truly vulnerable populations.
The AHA argues Medicaid financing schemes are critical to rural hospitals while completely ignoring the bigger issue: rural hospitals are more likely to benefit if resources are better targeted. Both studies rely on false or questionable assumptions to create political talking points.
The entire argument in these reports boils down to “hospitals take Medicaid, so less Medicaid money is bad.” It is misleading to suggest that directing ever-increasing taxpayer dollars to Medicaid managed care insurers somehow strengthens rural hospitals. These pieces often parrot talking points from major hospital corporations with little presence in rural areas.
These studies also ignore the reality—as noted by the Sheps Center, the same institution that provided Senate Democrats with their hospital closure data—that even rural hospitals with a high risk of experiencing financial distress have extremely low closure rates, in large part due to the high proportion of rural hospitals that receive a significant amount of subsidies due to their rural status. Sixty-one percent of rural hospitals are critical access hospitals (CAHs), meaning their costs for treating Medicare patients are fully covered by the federal government, and another 29 percent receive some form of cost-based reimbursement. That’s not even counting the disproportionate share hospital payments, 340B Drug Pricing Program discounts, geographic adjustments, and other plus-ups and subsidies that many rural hospitals receive.
Who Really Benefits from Medicaid Money Laundering? Not Rural Hospitals
Opponents of reform repeatedly invoke rural hospitals because they know the public wouldn’t sympathize with massive, profitable hospital systems. The real winners in today’s Medicaid scheme are those systems—with their consultants, lobbyists, and executive bonuses—not the rural providers scraping by on thin margins.
State-directed payments and provider tax gimmicks bloat federal spending while doing little to help the communities most in need. Reforming these loopholes opens the door for reforms that can actually improve rural care by:
Far more can be done for rural communities than preserving the current Medicaid financing boondoggle. Let’s be clear: reform opponents are protecting the interests of hospital executives, not rural patients.
Far from being on the brink, many hospitals have enjoyed revenue surges in recent years. STAT recently reported that hospital systems—particularly nonprofits—have seen sharp revenue increases fueled by a surge in Medicaid patients. An April WSJ report, highlighted how Universal Health Services (UHS) hospital system had 68% of their pre-tax income from supplemental Medicaid payments (including state directed payments), with similar or levels expected in 2025. UHS netted $1 billion in supplemental payments in 2024, up from $629 million in 2023.Meanwhile, Medicaid expansion has not actually improved the financial standing, staffing, or quality of care at CAHs (nearly two-thirds of all rural hospitals)—but it has lined the pockets of major, well-connected hospital systems and the corporate insurers who own Medicaid managed care organizations.
For example, AdventHealth, a nonprofit system with 53 hospitals (six of which were listed as “likely to close” in the Sheps Center report) across nine states, has a net margin that exceeds Amazon’s, ExxonMobil’s, and Disney’s each. Lown Institute produces a list of salaries of nonprofit health-system CEOs, with some making in excess of $30 million a year. These are not struggling rural providers.
Meanwhile, waste, fraud, and abuse in Medicaid siphon away billions of dollars that could support rural hospitals truly on the edge. Reform is the best opportunity to target funding where it belongs.
Rural, non-expansion states like Wyoming and Mississippi—where half the population lives in rural areas—stand to gain if federal funds are redirected away from corporate bloat and toward high-need providers.
Medicaid Money Laundering Reform Is the Path Forward
Policymakers must reject the myth that Medicaid reform will devastate rural care. That narrative is driven by those who benefit from a perverse system and seek to preserve it at all costs.
Rural hospitals don’t thrive on gimmicks; they thrive when policy is transparent, targeted, and honest. Reform is a chance to mitigate money laundering, reduce the fraud and waste that ran rampant during the Biden administration and prioritize the vulnerable rural communities.
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