A budget and tax bill moving through Congress could devastate rural hospitals across Southwest Virginia, potentially forcing closures, major job losses and cuts to essential services, health care leaders are warning.
“The reconciliation bill currently before congress, as written, will lead to the closure of rural hospitals and will have a disproportionate impact on Red States. Not sure there is any other way to put it,” Alan Levine, CEO of Ballad Health, wrote on X on June 17.
Ballad, the dominant health care provider in Southwest Virginia and Northeast Tennessee, serves some of the region’s most rural and medically underserved communities, where its hospitals are often the only source of inpatient care for miles. If the bill passes as written, Ballad officials say the system could lose more than $200 million annually, crippling hospitals that are already operating on thin margins.
Levine said that the proposed cuts to Medicaid provider taxes and state-directed payments would trigger major job losses in a region still recovering from the decline of industries like coal and textiles, where health care is one of the few remaining economic anchors.
A financial hit of this magnitude would force tough decisions about whether to continue vital programs, said Anthony Keck, Ballad’s executive vice president for system innovation and chief population health officer.
For example, Ballad has spent years growing specialized behavioral health programs across its health system, including allocations of opioid abatement funding to address substance use. This year, the hospital secured funding to open a residential treatment facility for pregnant women and their children in Wise County.
These programs are highly dependent on Medicaid reimbursement.
“There are some serious problems with that bill in terms of being able to sustain programs. That’s unfortunate because Virginia … did so much work to put together a very robust Medicaid reimbursement program,” Keck said.
Rural hospitals often serve a higher proportion of Medicaid patients than their urban counterparts. These communities tend to have higher poverty rates, fewer privately insured residents and limited access to employer-sponsored health insurance. As a result, rural hospitals rely heavily on Medicaid reimbursements to keep their doors open and provide essential services, even though those payments often don’t cover the full cost of care.
Some of the highest concentrations of Medicaid recipients in Virginia are in Southwest and Southside communities.
Danville has the third-highest rate of Medicaid enrollment in the state, with 29.9% of residents using Medicaid, including 27.7% of non-elderly adults and 46.4% of children, according to data from the Commonwealth Fund.
In Virginia, about 22% of the population is covered by Medicaid, or about 1.5 million adults and children, according to May 2025 data from KFF.
Martinsville ranks fifth, with 29.2% of residents on Medicaid, including 25.5% of non-elderly adults and 45.8% of children.
Other localities with high Medicaid enrollment include:
- Norton: 27.7% of residents, 27.8% of non-elderly adults, and 41% of children.
- Galax: 26.7% of residents, 23.7% of non-elderly adults, and 41% of children.
- Dickenson County: 25.1% of residents, 24.7% of non-elderly adults, and 40.9% of children.
U.S. Sen. Mark Warner, D-Va., criticized the bill, warning that its Medicaid cuts would endanger health care access in rural Virginia.
“Hospitals in Virginia’s rural communities run on incredibly small margins and are often kept afloat only by Medicaid dollars. When we slash Medicaid — as the GOP tax bill does — we’re not only taking away health care from children, poor families, and people with disabilities, we’re also kneecapping entire hospitals and medical centers, as well as all the people they serve, regardless of what kind of insurance they have,” Warner said in a statement this week.
How state-level Medicaid funding works
The legislation — also known as the One Big Beautiful Bill Act — includes sweeping cuts to Medicaid and the Affordable Care Act, established by the Obama administration in 2010. It targets two key funding mechanisms for Virginia’s Medicaid programs: the provider assessment rate and the state-directed payment.
The provider assessment rate is a tax that states impose on hospitals to generate revenue for the state portion of Medicaid expansion funding. That money allows states to draw down more federal funds, since the federal government matches what states contribute.
The federal government incentivized states to expand Medicaid under the Affordable Care Act by offering to cover 90% of the cost of providing health coverage to newly eligible low-income adults, as long as the state paid the remaining 10%.
When Medicaid expansion was being considered in Virginia, policymakers and hospitals brokered a deal: Hospitals would pay the 10% through the provider assessment tax, giving the state the ability to expand Medicaid and draw down more federal funding.
Each year, the provider assessment tax generates billions of dollars for Virginia, which are distributed to hospitals based on the share of Medicaid patients they serve, said said Julian Walker, vice president of communications with the Virginia Hospital and Healthcare Association. This structure allows larger health systems to help sustain rural hospitals and facilities in distressed communities, where Medicaid patients make up a higher percentage of those receiving care.
In Virginia, the provider assessment tax generated $572 million in 2025, he said.
In addition to covering the state’s 10% share of funding for the Medicaid expansion population, money from the provider assessment tax is used to enhance Medicaid reimbursement rates to providers, allowing the state to bridge the gap in Medicaid reimbursements, which currently cover about 78 cents on the dollar towards the actual cost of care.
Halting the provider assessment tax would also mean funds from the state directed payment program wouldn’t be available to help support smaller, rural hospitals.
In return for paying the provider tax, hospitals are reimbursed for the care they provide to Medicaid patients, said Dr. Michael Shepherd, assistant professor of health management and policy at the University of Michigan.
“Hospitals basically lose nothing from the taxes,” Shepherd said. “It’s just a way of sort of moving money around and then allow [states] to expand Medicaid coverage to more people or to offer more services as a result of having higher provider taxes.”
Shepherd added that the system isn’t partisan: Forty-nine of the 50 U.S. states use this method to secure additional federal Medicaid funding.
The House of Representatives version of the bill for the budget, which it passed last month, preserves the state-federal match rate for traditional Medicaid, which for Virginia is 50-50. It covers people who were eligible for Medicaid before the Affordable Care Act, primarily low-income parents with children, pregnant women, people with disabilities and the elderly.
Virginia missed the Senate cutoff by one day
Both the House and Senate versions of the budget bill would bar states from establishing new provider taxes. States that already have such programs could keep them, but they wouldn’t be allowed to increase the tax rate in the future.
The Senate proposal includes an additional restriction: States could only grandfather in provider taxes that were in place as of May 1. That creates a major problem for Virginia.
Earlier this year, Virginia lawmakers approved a significant expansion of the state’s provider tax. But the state budget wasn’t approved until May 2, which means Virginia’s expansion would not qualify under the Senate bill’s cutoff date.
Currently, Virginia taxes 63 private acute-care hospitals at 6% of their net patient revenue, according to Chris Gordon, chief financial officer for the Virginia Department of Medical Assistance Services. Gordon spoke with members of the state Senate Finance Committee on June 18.
A bill passed by the General Assembly and signed by the governor expanded the provider tax, effective this fiscal year and retroactive to July 1, 2024. The expansion broadened the tax to cover all private hospitals except certain freestanding sites such as children’s hospitals. It also added eight critical-access hospitals to the tax base.
That change would generate $1.3 billion in additional supplemental Medicaid payments to Virginia hospitals. But if the Senate plan passes, Virginia wouldn’t be able to collect that funding.
This change would have a direct impact on the eight critical-access hospitals that were added to the provider assessment tax, which have 25 beds or less, Gordon said. “They’re mostly in rural areas. We were supposed to start payment to those this year. If the Senate side prevails at the federal level, Virginia will not be able to proceed, unfortunately, with that.”
The Senate version includes another key provision: Even grandfathered provider taxes would have to gradually decrease. States would have to lower their tax rate by half a percentage point each year until 2031, when most would hit a 3.5% base rate.
This would eliminate $2.3 billion annually from Virginia Medicaid.
Sen. Tim Kaine, D-Va., warned that this Senate proposal would jeopardize access to essential care in rural regions and force painful choices onto working families.
“The Senate Republican bill’s cuts to Medicaid would have disastrous impacts for rural hospitals and make it harder for Virginians, especially in Southwest Virginia, to access the health care they need. It’s one of the many reasons I oppose this bill,” Kaine said. “We should not be massively cutting Medicaid and other programs Virginians rely on in order to pay for massive tax breaks to the wealthy.”
The American Hospital Association and its state chapters are already urging Congress to revise the Senate bill and adopt measures to protect rural health care access.
“The Senate proposal would have a devastating impact on hospitals,” Walker said. “The ripple effects would be disastrous.”
The state’s programs would lose about $2 billion annually under the Senate plan, Walker said. All hospitals would feel the strain, but rural hospitals could be the first to cut services or close.
Rep. Morgan Griffith, R-Salem, declined this week to weigh in on the draft legislation.
“The Senate has not released final bill text for their reconciliation proposal,” he said in an emailed statement. “With an expected lengthy amendment process to follow, I believe it would be premature for me to comment on reconciliation matters pending in the Senate.”
Any changes that the Senate makes to the bill must go back to the House for approval before the legislation can be sent on to the White House. Congress is set to go on recess next week for the July 4 holiday; Trump has been pushing legislators to finish the bill before they leave.
Closures could start 12 to 18 months after policy changes
Reimbursement from Medicaid accounts for up to 33% of revenue at Virginia’s rural hospitals. A significant reduction of this funding, combined with a larger population of uninsured patients due to work requirements in the proposed federal budget, would force rural hospitals to operate on razor-thin margins, said Beth O’Connor, executive director of the Virginia Rural Health Association.
Work requirements could cause roughly 20% of current Medicaid enrollees to lose coverage, O’Connor said.
“A hospital isn’t a business,” O’Connor said. “If somebody shows up in the emergency room, they have to at least see them, whereas you think about a grocery store, an apartment complex, a clothing store, if 20% of the customers didn’t pay the bill, they’re not going to stay open for very long. The same is going to be true for hospitals.”
When hospitals lose Medicaid funding, they have few options to recover, Shepherd said.
The first move is often to sell or merge with a larger system. Services at these hospitals are usually scaled back as a result.
Nearly all rural hospitals in Virginia are already part of larger health systems like Carilion Clinic, Ballad Health or Lifepoint Health. Only one independent rural hospital remains in Southwest Virginia: Buchanan General Hospital in Grundy, where 24.8% of residents rely on Medicaid.
Cardinal News reached out to Carilion, Buchanan General and leadership at Southwest Virginia facilities operated by Lifepoint Health to talk about how the proposed federal changes could impact their hospitals and patients. Leadership at Carilion Clinic declined to comment. As of publication, the other organizations had not responded.
[Disclosure: Carilion is one of our donors, but donors have no say in news decisions; see our policy.]
Being part of a larger system can help rural hospitals stay open longer, but it doesn’t make them immune to financial distress. At some point, even these systems may be unable to sustain hospitals that serve a high percentage of Medicaid patients, O’Connor said.
If the federal budget passes as currently proposed in the Senate, hospitals could lobby for new funding mechanisms at the state or federal level.
If funding losses occur, hospitals would likely first eliminate services like obstetrics, since Medicaid pays for about 50% of rural births. Specialized care, such as intensive care units, would be next. The closure of an emergency department typically signals that a hospital itself is on the brink of shutting down, Shepherd said.
Shepherd noted that hospitals plan years ahead. Even before policies take effect, state or federal budget cuts can prompt service reductions. He estimates hospitals could survive for two to three years after such cuts, though closures could begin in 2028 or 2030. But it’s hard to predict since the reserve funds at a hospital aren’t usually publicly available.
O’Connor predicts Virginia could see rural hospital closures within 12 to 18 months if the Senate plan moves forward. While some politicians, including Warner and Abigail Spanberger, the Democratic nominee for governor, have made statements about how many hospitals are likely to close, health care experts say it’s difficult to come up with an accurate tally. It will depend on the financial reserves at each hospital, O’Connor said, which varies significantly and is not information that is publicly available.
“Are we going to lose every rural hospital? No, probably not, but what I think will likely happen is some of the hospital systems that have several community hospitals are going to have to make some really hard decisions about who stays open and who closes,” she said.
While it’s possible that Virginia could consider raising individual taxes to help finance the program, both Shepherd and O’Connor expressed doubt that such a measure would gain traction. Tax increases are typically unpopular with policymakers, and overall state tax rates are relatively low.
