Rural hospitals across the United States are bracing for potentially devastating cuts under Medicaid changes being crafted by the Senate Finance Committee, with healthcare leaders warning that the proposed legislation could lead to the closure of critical access hospitals that serve as lifelines for small communities nationwide. The Senate is expected to release its version of the reconciliation bill as early as this week, with discussions centering on deeper cuts to Medicaid funding than those passed by the House. For the nation's approximately 1,350 critical access hospitals and small rural facilities, the changes represent an existential threat to their operations, which are already strained by workforce shortages and post-pandemic financial pressures.

More than 180 rural hospitals have closed since 2005, and healthcare advocates warn that the proposed Senate changes could accelerate that trend dramatically. Rural hospitals operate on razor-thin margins, with many serving communities where Medicaid beneficiaries comprise 40 to 60 percent of their patient base. The proposed Senate changes include several provisions that would hit rural hospitals especially hard, including significant cuts to enhanced federal matching rates for Medicaid expansion states, which would eliminate billions in federal funding that helps offset the chronic underpayment rural hospitals receive for Medicaid services.

On June 5, 2025, the Nebraska High Value Network (NHVN) officially launched with 19 critical-access hospitals joining forces to strengthen healthcare delivery across rural communities. This collaborative network, organized by Cibolo Health, represents more than just a partnership—it's a strategic approach to ensuring sustainable, high-quality healthcare remains accessible in rural Nebraska.

The network's cornerstone is a clinically integrated network (CIN) that will serve nearly 300,000 patients while allowing each hospital to maintain its independence and community focus. For healthcare leaders like myself, this model offers a compelling path forward in an increasingly complex healthcare landscape.

The Congressional Budget Office's June 4, 2025 analysis of H.R. 1 (the "One Big Beautiful Bill Act") as passed by the House of Representatives provides stark confirmation of what rural health advocates feared, but the crisis may be far from over. The CBO projects that 16 million Americans would lose health insurance by 2034 under the House-passed bill, with rural communities bearing a disproportionate burden due to their heavy reliance on Medicaid and federally-funded programs. However, as the Senate now works on its version through budget reconciliation, early signals suggest senators may push for even deeper cuts, making the CBO's devastating projections a floor rather than a ceiling for potential coverage losses.

This escalating threat comes on top of the Trump Administration's FY 2026 HHS Budget, which would simultaneously eliminate critical rural health programs including Medicare Rural Hospital Flexibility Grants, State Offices of Rural Health, and the Rural Hospital Stabilization Program. Rural communities now face the unprecedented prospect of losing both federal support programs and insurance coverage that keeps rural hospitals financially viable, with the Senate potentially making an already catastrophic situation even worse.

The numbers from the House-passed bill tell a devastating story, but they represent only the beginning of potential damage. The CBO analysis reveals that 5.1 million people would lose insurance from baseline policy changes including premium tax credit expiration and new marketplace rules, while 10.9 million additional people would lose coverage from H.R. 1 provisions as passed by the House. Most alarming for rural America, 7.8 million of those losses come directly from Medicaid changes that will devastate communities already facing hospital closures and provider shortages. These numbers represent more than statistics—they represent rural families losing access to critical healthcare services in areas where alternatives simply don't exist. But as the Senate crafts its reconciliation bill, comments from senators suggest they may pursue even more aggressive cuts, potentially pushing coverage losses well beyond the CBO's already-catastrophic projections.

At 2 AM in rural Montana, when a farmer suffers a heart attack and his wife frantically calls 911, the nearest hospital with cardiac care is 90 minutes away—if it's still open. This scenario is becoming increasingly common across rural America as healthcare infrastructure crumbles, and proposed Medicaid cuts threaten to accelerate the devastating trend.

The House's razor-thin 215–214 passage of the "One Big Beautiful Bill Act" has ignited a Senate reconciliation process that could strip approximately $750 billion from Medicaid over the next decade. The proposed changes include capped funding formulas and 80-hour monthly work mandates that health policy experts say would disproportionately impact rural communities where seasonal employment is common.

Rural America is already experiencing a healthcare crisis. Since 2010, more than 150 rural hospitals have closed their doors, leaving entire communities without local emergency care, obstetrics services, or specialized treatment. Each closure eliminates not just medical services but also jobs and economic stability in communities that can least afford the loss.

In rural areas, Medicaid serves as more than just another government program—it's an economic lifeline. The program covers nearly one in four non-elderly residents in these communities and serves as the primary revenue source keeping hospitals financially viable. These facilities operate on razor-thin margins where a late harvest season or unexpected flu outbreak can push them into bankruptcy.

Rural hospitals across America face a precarious financial situation, with nearly half operating in the red and hundreds vulnerable to closure. According to a comprehensive new report from the Chartis Center for Rural Health titled "Medicaid cuts would push rural hospitals—and care for rural communities—over the edge (link at bottom)," potential Medicaid cuts could devastate these vital healthcare institutions and the communities they serve.

The Chartis report, released in May 2025, provides alarming data about the current state of rural healthcare in America. An estimated 10.1 million people rely on Medicaid in rural hospital communities across the country. These individuals depend on their local hospitals for essential services, yet these same hospitals are increasingly operating on what Chartis describes as "the razor's edge" of financial sustainability.

Even without Medicaid cuts, rural healthcare's capacity is already tenuous. The Chartis analysis shows that nearly 50% of rural hospitals are operating in the red, 432 are vulnerable to closure, and many are discontinuing services just to keep their doors open. Recent budget reconciliation efforts on Capitol Hill have pushed potential Medicaid cuts into the spotlight, with the House Committee on Energy and Commerce tasked with finding $880 billion in savings over 10 years.

Rural hospitals face a perfect storm of challenges: aging populations, higher rates of chronic disease, lower reimbursement rates, and thinner operating margins. The Medicaid Directed Payment Program has emerged as a critical tool to ensure these essential healthcare facilities remain viable while improving care quality. Nebraska's recent implementation offers valuable insights into how these programs can transform rural healthcare delivery.

Directed payments, established by the Centers for Medicare & Medicaid Services (CMS) in 2016, allow states to require Medicaid managed care organizations (MCOs) to pay providers according to specific rates or methods. According to MACPAC (Medicaid and CHIP Payment and Access Commission), these payment arrangements can be used to establish minimum fee schedules, require participation in value-based payment arrangements, or implement uniform payment rate increases. Unlike traditional supplemental payments, which aren't allowed in managed care, directed payments must be tied to utilization and delivery of services under the managed care contract, distributed equally to specified providers, and advance at least one goal in the state's managed care quality strategy.

With Berkshire Hathaway reporting $47.4 billion in operating earnings for 2024, Warren Buffett's latest insights offer timely lessons for healthcare organizations aiming to strengthen their investment programs. Hospitals and health systems face unique challenges: they must balance strict regulatory requirements, credit rating considerations, and community care obligations while pursuing long-term financial stability.

One of Buffett's most pointed observations centers on the vulnerability of paper currency. "Paper money can see its value evaporate if fiscal folly prevails," he warns, noting that "in some countries, this reckless practice has become habitual." This caution is particularly relevant for hospitals, which typically hold substantial cash reserves to ensure smooth operations and manage major capital expenditures. Although liquidity is critical, a heightened awareness of inflation and currency risk calls for more sophisticated cash management strategies. Importantly, Buffett notes that "Fixed-coupon bonds provide no protection against runaway currency," suggesting the need for more dynamic approaches to preserving purchasing power.

The state of rural healthcare in America has reached a critical tipping point, with nearly half of rural hospitals operating in the red and 432 facilities vulnerable to closure. According to the Chartis report, these stark numbers represent more than just statistics – they reflect a growing crisis in healthcare access for over 46 million Americans living in rural communities.

Since 2010, 182 rural hospitals have either closed their doors completely or converted to models that no longer provide inpatient care. This represents approximately 10% of the nation's rural hospitals, creating what healthcare experts call "care deserts" across vast stretches of rural America. The impact is particularly severe in states like Texas, which has lost 26 facilities, and Tennessee, which has seen 16 closures.

Healthcare organizations face a critical juncture in their investment and operational strategies. The Buffett Indicator, a metric for assessing market valuations, tells a compelling story: with a current reading of 208%, the total U.S. stock market value towers at more than double the nation's GDP. This stark figure, sitting approximately 66.62% above the historical trend line, signals that the market is strongly overvalued and demands attention from hospital leadership.

For healthcare organizations, particularly hospitals that typically maintain substantial investment portfolios, this market environment presents both challenges and opportunities. Recent market events provide a stark illustration of this fragility. Consider the impact of Deepseek's emergence just last month, when this Chinese AI company's release of competitive large language models challenged a fundamental market assumption: the perceived invulnerability of U.S.-based AI companies. For years, American technology giants had justified their extraordinary valuations partly on the notion of an unassailable AI moat – a combination of data advantages, computational resources, and intellectual capital that investors believed would be nearly impossible for competitors to replicate.

When Deepseek demonstrated comparable capabilities at a fraction of the development cost, it exposed the fragility of these assumed competitive advantages. Major American tech companies, which had commanded premium valuations based on their perceived AI dominance, saw their market capitalizations decline significantly as investors were forced to reassess their assumptions about technological barriers to entry. This episode demonstrated not just how quickly market sentiment can shift, but how dangerous it can be to build investment theses on perceived competitive advantages that may prove more vulnerable than expected.

Charlie Munger’s life is a masterclass in disciplined thinking, patience, and the pursuit of quality. As Warren Buffett’s partner at Berkshire Hathaway, Munger’s influence shaped not only one of the most successful investment strategies in history but also a broader philosophy of decision-making that resonates far beyond finance. His approach offers lessons for individuals and organizations alike—particularly those navigating complex and mission-driven challenges.

Munger’s principles were forged early in life, rooted in values of fairness, self-control, and intellectual curiosity. Raised in a modest but loving home, he was instilled with the importance of education and the discipline to pursue meaningful goals. These lessons carried through his career, where he became known for his emphasis on making decisions based on enduring value rather than fleeting trends.

As a follow-up to Tuesday’s (Dec 10) post, we presented an opportunity many hospitals have available through a strategic approach to managing the balance sheet financial assets. Hospitals continually search for ways to strengthen their financial foundation. To recap, a recent analysis of 37 Minnesota hospitals has uncovered a significant opportunity many institutions overlook: again - through a more strategic utilization of their investment portfolios.

These 37 hospitals collectively manage nearly $1 billion ($933.5M) in investable assets, yet currently generate only $13.9 million in annual investment income—a return of just 1.49%. With current treasury rates between 4-5%, even a conservative treasury strategy could generate between $37.3 million and $46.7 million annually—an additional $23.4M to $32.8M over current returns. This represents an additional $632,000 to $886,000 per hospital, achievable through low-risk treasury management. To put this in perspective, even at the conservative 4% return level, the additional $23.4M in annual income could fund 195 new nursing positions across these institutions. Moving to a balanced portfolio approach targeting 7% returns would generate $65.3 million annually, providing an additional $51.4M system-wide or $1.4M per hospital through a thoughtfully diversified investment strategy.

Hospitals have traditionally focused on operational revenue for much of their ability to reinvest in the resources needed to care for a community—the day-to-day revenue (and income) from patient care, procedures, and reimbursements. But beneath these obvious revenue streams lies a potentially transformative opportunity that many healthcare institutions overlook: the strategic management of their investable assets.

A recent study of 37 Minnesota hospitals reveals a striking picture of this untapped potential. These institutions collectively manage nearly $1 billion in investable assets. Yet, their cautious investment approaches may leave significant value on the table—value that could be reinvested in patient care, staff development, and crucial infrastructure improvements.

Picture this: For every tax dollar you send to Washington in 2024 (soon to be 2025), a growing portion isn't going to provide healthcare, build highways, support veterans, or fund education. Instead, it's being used to pay interest on our national debt. According to recent Congressional Budget Office projections, this year alone, the federal government will spend an astounding $892 billion just on interest payments. That's not paying down the debt itself – that's merely the cost of borrowing.

To grasp the magnitude of this financial burden, consider that we're now spending more on interest payments than on Medicaid, all federal programs for children, veterans' benefits, and critical income security programs combined. These interest payments, which essentially amount to the cost of past spending, are beginning to overshadow investments in our nation's future.

In hospitals today, administrators and board members face a unique challenge: balancing the noble mission of healthcare delivery with the pragmatic needs of financial sustainability. This intersection of purpose and practicality finds a compelling solution in an investment philosophy that dates back to the Great Depression – value investing.

Benjamin Graham, often called the father of value investing, developed his investment principles during one of America's most challenging economic periods. His approach, first detailed in "Security Analysis" (1934), emphasized finding the true worth of investments beyond their market prices. This focus on intrinsic value mirrors how hospitals must evaluate both their clinical and financial decisions – with careful analysis, patient consideration, and a long-term perspective.

Howard Marks, a modern torchbearer of value investing principles, wrote in "The Most Important Thing" (2011) that "successful investing requires thoughtful attention to many separate aspects, all at the same time." This multifaceted approach resonates deeply with hospital operations, where success depends on simultaneously managing patient care, financial stability, and community health.

Even with a well-defined financial strategy, ongoing monitoring, and adaptability are essential to ensure long-term success. Market conditions fluctuate, and healthcare needs evolve, necessitating a proactive approach to managing financial assets.

Regular performance reviews are essential to aligning with the hospital’s mission and goals. Monitoring helps ensure that investments continue to meet targeted returns and that assets are being optimally utilized to support operational and capital needs.

Introduction As hospitals increasingly rely on financial assets to support their missions, strong governance and fiduciary oversight become crucial. Effective asset management requires more than sound investments; it also requires a commitment to transparency, accountability, and adherence to fiduciary best practices.

The Role of Fiduciary Responsibility For hospitals, fiduciary responsibility means managing assets with the highest ethical standards and ensuring that investments are made in the best interest of the organization and its community. Adhering to standards like the Uniform Prudent Management of Institutional Funds Act (UPMIFA) provides a legal and ethical framework for responsible financial management.

Introduction Balancing operational and capital needs is a critical challenge for hospitals. As costs rise and reimbursements fluctuate, hospitals are often forced to make difficult choices between day-to-day operating needs and long-term capital improvements. One solution to this dilemma is optimizing balance sheet assets to generate a reliable revenue source that supports both immediate and future needs.

Why Alignment Matters Hospitals must be able to cover both daily expenses and long-term investments, such as facility upgrades, technology, and staff development. By strategically investing the financial reserves, hospitals can create a dedicated source of revenue that helps balance these needs, reducing the dependency on inconsistent operating income alone.

Introduction For years, many hospitals have taken a conservative approach to financial management, prioritizing asset protection with low-yield investments. While safe, this approach no longer meets the demands of today’s healthcare environment. Hospitals need a strategy that balances stability with growth—a value-based, fundamental approach that aligns with their mission and financial needs.

What is Value-Based, Fundamental Investing? Value-based, fundamental investing is an approach focused on long-term growth by investing in quality assets that are undervalued in the market. Rather than seeking short-term gains, this strategy prioritizes stability and alignment with the hospital’s goals, such as supporting healthcare innovation, community health, and financial resilience.

The financial landscape grows more challenging each year for hospitals, particularly those serving rural communities. Hospitals are increasingly pressured to do more with less with less - with declining reimbursement rates, rising operational costs, and a complex regulatory environment. Over the last two decades, over 180 hospitals closed nationwide—often leaving communities without access to essential healthcare services.

In response to these challenges, some healthcare leaders often overlook a valuable resource: balance sheet financial assets. When managed strategically, these assets can become a sustainable source of non-operating revenue, creating financial resilience and supporting reinvestment in patient care, staff, and critical infrastructure.