Medicaid cuts ‘blow up’ bond options for rural hospitals

The Medicaid cuts passed in President Donald Trump’s “Big Beautiful Bill” could push rural hospital systems out of the municipal bond market, according to Columbia Threadneedle Investments. 

“Rural hospitals were already uninvestible, in our mind,” Shannon Rinehart, the firm’s co-head of muni investments, said in an interview. “What this has done is blow up any chance they have.”

Not-for-profit hospitals around the country depend on bond market financing to build new facilities, upgrade existing property or buy new equipment. 

Investors have been getting nervous about the sector since Republicans in July passed their budget bill cutting about $1 trillion from Medicaid, the public health-insurance program for low-income and disabled people.

A Bloomberg Index of hospital munis, which has a market value of about $166 billion, has lost 1.6% in 2025, while the overall muni market is down about 0.1%. Meanwhile, the risk premium that investors demand to hold hospital debt over a broader muni gauge has ticked up since last year. 

An analysis by KFF Health News estimates that federal Medicaid spending in rural areas will drop by $137 billion over 10 years.

“This legislation will limit access to care for all rural patients” by ending their health-care coverage and “putting financial strain” on the facilities they rely on, the National Rural Health Association said in a message to its members in July.

On Wednesday, medical-transportation firm ModivCare Inc. filed for bankruptcy after the cuts to federal health-care funding threatened to crimp its future cash flows. The company served low-income patients through Medicaid.

‘Band-Aid’

The Trump administration has touted a program in the spending bill that provides $50 billion over five years and aims to make rural health-care more “effective and sustainable for the long term,” according to a White House press release. 

“That’s like a Band-Aid,” said Columbia Threadneedle’s Rinehart.

Even before funding was slashed, nearly half of rural hospitals were operating in the red in 2023, and almost 100 have closed or been unable to provide inpatient services in the past decade, according to the American Hospital Association. Rinehart said the facilities were already a tough sell for investors, since they’re less likely to be acquired by a larger hospital system or to lean on elective surgery income. 

She warned that even strong, urban health-care systems are not immune to lower Medicaid funding, especially as tariffs raise costs on imported medical equipment.

“Hospitals are really getting dinged from every single direction,” Rinehart said. “We’ve never really had rural hospitals, but we have trimmed hospital exposure.”