A new federal law, the “One Big, Beautiful Bill Act” (OBBBA), is poised to deliver a staggering financial blow to the Duke University Health System (DUHS), threatening to unravel years of progress in expanding healthcare access across North Carolina. Through sweeping changes to Medicaid funding and eligibility, the legislation is projected to create an annual shortfall of hundreds of millions of dollars, creating a crisis that extends far beyond hospital balance sheets. The core of the issue lies in the act’s provisions, which systematically dismantle key revenue streams that major medical centers like Duke rely on to serve vulnerable populations. These mechanisms were specifically designed to offset the traditionally low reimbursement rates associated with Medicaid, and their removal represents a direct and immediate threat to the health system’s financial stability and its ability to provide comprehensive care. The fallout from these changes could reshape the state’s entire healthcare landscape, leaving patients and providers in a precarious position.
The Critical Role of Medicaid in Duke’s Finances
For a major academic medical center like Duke Health, Medicaid has evolved into a fundamental and rapidly growing source of revenue, making the system particularly vulnerable to federal funding cuts. In the fiscal year that ended in 2025, DUHS generated over $1 billion directly from Medicaid and its associated managed care programs, a figure that accounted for a substantial 14.5% of the system’s total patient service revenue. This financial dependence was significantly amplified by North Carolina’s landmark Medicaid expansion in December 2023. This policy change swiftly brought an additional 670,000 residents into the program, leading to an immediate and direct increase in Duke’s Medicaid-related revenue share, which grew by 3.2 percentage points following the expansion. This influx of newly insured patients is clearly reflected in patient volume statistics for the 2025 fiscal year, during which Duke Health managed nearly 11,000 Medicaid inpatient visits and almost 505,000 outpatient encounters. Based on state data, it is estimated that a significant portion—21.5%—of Duke Health’s patients became insured as a direct result of this state-level expansion, illustrating how intertwined the system’s financial health is with the program’s viability.
The context of this deep reliance on Medicaid funding underscores the severity of the threat posed by the OBBBA’s provisions, which aim to curtail both enrollment and provider payments. Remarks from a recent Academic Council meeting brought the scale of the potential damage into sharp focus, with officials projecting a financial black hole of $401 million for Duke Health in the first year alone. However, long-term financial modeling conducted by the university’s finance leadership suggests the cumulative impact could be even more devastating. Rachel Satterfield, Duke’s Treasurer and Vice President for Finance, estimated a potential loss “closer to a billion dollars over five years in terms of the lost revenue to the health system.” This alarming forecast transforms the legislative changes from a distant policy debate into an imminent existential challenge for one of the state’s most critical healthcare providers. The potential for such a massive and sustained revenue loss forces a strategic re-evaluation of all operations, as the system braces for a new era of fiscal constraint that could impact everything from service offerings to long-term expansion plans.
How the New Law Dismantles Key Funding Streams
The “One Big, Beautiful Bill Act” launches a multi-pronged assault on the financial underpinnings of state Medicaid programs through several key mechanisms designed to reduce federal and state spending. One of the most impactful provisions involves severe restrictions on State-Directed Payments (SDPs). For the last decade, states have utilized SDPs as a critical tool to counteract historically low Medicaid reimbursement rates. This program allows states to compel the private insurance companies that administer Medicaid benefits—known as Managed Care Organizations (MCOs)—to pay healthcare providers at higher, state-mandated rates. The supplemental funding is sourced from the state’s Medicaid budget and amplified by matching federal dollars. The OBBBA directly dismantles this system for states like North Carolina that have expanded Medicaid. The new law imposes a cap on reimbursement rates, stipulating that new SDPs cannot compensate providers for Medicaid patients at a rate higher than Medicare’s. While a limited number of existing SDPs are grandfathered in, they must adhere to these new, lower payment limits by 2028. As Robert Saunders, a senior research director at the Duke-Margolis Institute for Health Policy, warns, as these payments are rolled back, “the payment levels for certain Medicaid services would revert to what they were before”—that is, back to the insufficient pre-SDP levels that threatened provider participation in the program.
A second crucial funding mechanism under threat is the use of medical provider taxes. States levy these taxes on the revenue generated by hospitals and other care facilities, and the resulting funds are then used to draw down additional federal matching funds for the state’s Medicaid program. This process effectively allows providers to have their tax contributions reimbursed through the infusion of federal dollars, creating a vital funding loop that makes large-scale initiatives like Medicaid expansion financially feasible for states. North Carolina heavily relied on these provider taxes to fund its 10% share of the cost for the recent expansion, with the federal government covering the remaining 90%. The OBBBA undermines this strategy by instituting a stricter cap on these taxes, mandating a gradual reduction of the provider tax rate from its current 6% down to 3.5% by 2032 and outright banning states from enacting any new provider taxes. According to a KFF analysis, North Carolina’s current hospital provider tax is above the new 3.5% threshold and will therefore have to be cut. Saunders suggests that if the state cannot find alternative funds to replace these losses, it may be forced to take the drastic step of rolling back the Medicaid expansion itself.
Duke’s Response and Broader Systemic Concerns
Faced with this impending financial crisis, Duke Health’s leadership is actively engaged in comprehensive scenario planning to understand how these drastic provisions will impact patient access and service delivery across its network. Catherine Liao, Duke Health’s Vice President for Government Relations, confirmed that the health system’s government relations team is working diligently to provide data and detailed impact reports to lawmakers to illustrate the potential real-world consequences of the law. While no specific service cuts have yet been announced, the situation is prompting a fundamental strategic re-evaluation of operations as the system prepares for a significant reduction in its primary revenue streams. A primary fear among healthcare administrators is the potential for severe overcrowding in emergency departments. As individuals lose their insurance coverage due to the new eligibility requirements, they are far more likely to forgo lower-cost preventive care and instead delay seeking treatment until their conditions escalate into emergencies. Since hospitals like Duke are legally obligated to treat all patients in their emergency rooms regardless of their ability to pay, this will inevitably lead to a substantial increase in uncompensated care, further straining already tight financial resources and creating longer wait times for all patients.
The immense financial pressures created by the OBBBA are not unique to Duke and could prove catastrophic for smaller, more vulnerable rural hospitals across North Carolina. If these local facilities are forced to reduce services or close altogether, patients from rural areas will have no choice but to travel farther for care, likely to larger systems like Duke. Liao anticipates a potential “influx” of patients from these communities, which could overwhelm Duke’s capacity and strain its specialty care resources. While the new law includes a $50 billion rural health fund, the relief it offers may be limited and spread thin. North Carolina’s 2026 allocation of $213 million averages out to only $72 per rural resident, and the funds are not exclusively earmarked for struggling hospitals. As a potential mitigation strategy, Duke Health is exploring the expanded use of telehealth to provide care to patients who may face new travel barriers. However, the future of telehealth funding itself is not guaranteed. While Congress has extended coverage until December 2027, its long-term status remains uncertain, leaving another potential solution on unstable ground. The full impact of the legislation remains to be seen as federal agencies finalize implementation rules, but the path forward appears fraught with significant challenges for providers and patients alike.Fixed version:
A new federal law, the “One Big, Beautiful Bill Act” (OBBBA), is poised to deliver a staggering financial blow to the Duke University Health System (DUHS), threatening to unravel years of progress in expanding healthcare access across North Carolina. Through sweeping changes to Medicaid funding and eligibility, the legislation is projected to create an annual shortfall of hundreds of millions of dollars, creating a crisis that extends far beyond hospital balance sheets. The core of the issue lies in the act’s provisions, which systematically dismantle key revenue streams that major medical centers like Duke rely on to serve vulnerable populations. These mechanisms were specifically designed to offset the traditionally low reimbursement rates associated with Medicaid, and their removal represents a direct and immediate threat to the health system’s financial stability and its ability to provide comprehensive care. The fallout from these changes could reshape the state’s entire healthcare landscape, leaving patients and providers in a precarious position.
The Critical Role of Medicaid in Duke’s Finances
For a major academic medical center like Duke Health, Medicaid has evolved into a fundamental and rapidly growing source of revenue, making the system particularly vulnerable to federal funding cuts. In the fiscal year that ended in 2025, DUHS generated over $1 billion directly from Medicaid and its associated managed care programs, a figure that accounted for a substantial 14.5% of the system’s total patient service revenue. This financial dependence was significantly amplified by North Carolina’s landmark Medicaid expansion in December 2023. This policy change swiftly brought an additional 670,000 residents into the program, leading to an immediate and direct increase in Duke’s Medicaid-related revenue share, which grew by 3.2 percentage points following the expansion. This influx of newly insured patients is clearly reflected in patient volume statistics for the 2025 fiscal year, during which Duke Health managed nearly 11,000 Medicaid inpatient visits and almost 505,000 outpatient encounters. Based on state data, it is estimated that a significant portion—21.5%—of Duke Health’s patients became insured as a direct result of this state-level expansion, illustrating how intertwined the system’s financial health is with the program’s viability.
The context of this deep reliance on Medicaid funding underscores the severity of the threat posed by the OBBBA’s provisions, which aim to curtail both enrollment and provider payments. Remarks from a recent Academic Council meeting brought the scale of the potential damage into sharp focus, with officials projecting a financial black hole of $401 million for Duke Health in the first year alone. However, long-term financial modeling conducted by the university’s finance leadership suggests the cumulative impact could be even more devastating. Rachel Satterfield, Duke’s Treasurer and Vice President for Finance, estimated a potential loss “closer to a billion dollars over five years in terms of the lost revenue to the health system.” This alarming forecast transforms the legislative changes from a distant policy debate into an imminent existential challenge for one of the state’s most critical healthcare providers. The potential for such a massive and sustained revenue loss forces a strategic re-evaluation of all operations, as the system braces for a new era of fiscal constraint that could impact everything from service offerings to long-term expansion plans.
How the New Law Dismantles Key Funding Streams
The “One Big, Beautiful Bill Act” launches a multi-pronged assault on the financial underpinnings of state Medicaid programs through several key mechanisms designed to reduce federal and state spending. One of the most impactful provisions involves severe restrictions on State-Directed Payments (SDPs). For the last decade, states have utilized SDPs as a critical tool to counteract historically low Medicaid reimbursement rates. This program allows states to compel the private insurance companies that administer Medicaid benefits—known as Managed Care Organizations (MCOs)—to pay healthcare providers at higher, state-mandated rates. The supplemental funding is sourced from the state’s Medicaid budget and amplified by matching federal dollars. The OBBBA directly dismantles this system for states like North Carolina that have expanded Medicaid. The new law imposes a cap on reimbursement rates, stipulating that new SDPs cannot compensate providers for Medicaid patients at a rate higher than Medicare’s. While a limited number of existing SDPs are grandfathered in, they must adhere to these new, lower payment limits by 2028. As Robert Saunders, a senior research director at the Duke-Margolis Institute for Health Policy, warns, as these payments are rolled back, “the payment levels for certain Medicaid services would revert to what they were before”—that is, back to the insufficient pre-SDP levels that threatened provider participation in the program.
A second crucial funding mechanism under threat is the use of medical provider taxes. States levy these taxes on the revenue generated by hospitals and other care facilities, and the resulting funds are then used to draw down additional federal matching funds for the state’s Medicaid program. This process effectively allows providers to have their tax contributions reimbursed through the infusion of federal dollars, creating a vital funding loop that makes large-scale initiatives like Medicaid expansion financially feasible for states. North Carolina heavily relied on these provider taxes to fund its 10% share of the cost for the recent expansion, with the federal government covering the remaining 90%. The OBBBA undermines this strategy by instituting a stricter cap on these taxes, mandating a gradual reduction of the provider tax rate from its current 6% down to 3.5% by 2032 and outright banning states from enacting any new provider taxes. According to a KFF analysis, North Carolina’s current hospital provider tax is above the new 3.5% threshold and will therefore have to be cut. Saunders suggests that if the state cannot find alternative funds to replace these losses, it may be forced to take the drastic step of rolling back the Medicaid expansion itself.
Duke’s Response and Broader Systemic Concerns
Faced with this impending financial crisis, Duke Health’s leadership is actively engaged in comprehensive scenario planning to understand how these drastic provisions will impact patient access and service delivery across its network. Catherine Liao, Duke Health’s Vice President for Government Relations, confirmed that the health system’s government relations team is working diligently to provide data and detailed impact reports to lawmakers to illustrate the potential real-world consequences of the law. While no specific service cuts have yet been announced, the situation is prompting a fundamental strategic re-evaluation of operations as the system prepares for a significant reduction in its primary revenue streams. A primary fear among healthcare administrators is the potential for severe overcrowding in emergency departments. As individuals lose their insurance coverage due to the new eligibility requirements, they are far more likely to forgo lower-cost preventive care and instead delay seeking treatment until their conditions escalate into emergencies. Since hospitals like Duke are legally obligated to treat all patients in their emergency rooms regardless of their ability to pay, this will inevitably lead to a substantial increase in uncompensated care, further straining already tight financial resources and creating longer wait times for all patients.
The immense financial pressures created by the OBBBA are not unique to Duke and could prove catastrophic for smaller, more vulnerable rural hospitals across North Carolina. If these local facilities are forced to reduce services or close altogether, patients from rural areas will have no choice but to travel farther for care, likely to larger systems like Duke. Liao anticipates a potential “influx” of patients from these communities, which could overwhelm Duke’s capacity and strain its specialty care resources. While the new law includes a $50 billion rural health fund, the relief it offers may be limited and spread thin. North Carolina’s 2026 allocation of $213 million averages out to only $72 per rural resident, and the funds are not exclusively earmarked for struggling hospitals. As a potential mitigation strategy, Duke Health is exploring the expanded use of telehealth to provide care to patients who may face new travel barriers. However, the future of telehealth funding itself is not guaranteed. While Congress has extended coverage until December 2027, its long-term status remains uncertain, leaving another potential solution on unstable ground. The full impact of the legislation remains to be seen as federal agencies finalize implementation rules, but the path forward appears fraught with significant challenges for providers and patients alike.
