Insights

On February 3, 2026, Congress finalized federal funding for fiscal year (FY) 2026, with the House passing the Consolidated Appropriations Act (CAA), 2026, with a vote of 217-214, following Senate approval last week. The president signed the CAA (H.R. 7148) shortly thereafter. The law provides full-year appropriations for the Departments of Health and Human Services (HHS), Housing and Urban Development, Labor, and several other departments. 

This year’s HHS funding bill is notable not only for what it includes, but also for what it omits. It restores or maintains funding for key public health and research agencies previously proposed for elimination in the president’s FY 2026 budget request, extends several healthcare programs, and contains a significant package of pharmacy benefit manager (PBM) reforms. All of this activity comes as the Administration announces new grant programs and policy efforts related to its signature priorities. 

In this article, we review the major funding and policies approved in the HHS spending bill. We also address key considerations for healthcare organizations as they anticipate downstream funding and policy developments and develop advocacy initiatives for federal FY 2027 bills. 

HHS Funding Levels and Direction 

The bill provides $116.8 billion for HHS, an increase of $210 million over FY 2025, and rejects large-scale structural reorganizations proposed in the president’s FY 2026 budget. This provision preserves funding for the Agency for Healthcare Research and Quality (AHRQ), Centers for Disease Control and Prevention (CDC), Health Resources & Services Administration (HRSA), and the Substance Abuse and Mental Health Services Administration (SAMHSA) 

Table 1. HHS Agency Funding Highlights, FY 2026 

Agency	FY 2026 Funding	(+/-) Compared with FY 2025
Administration for Strategic Preparedness and Response (ASPR)	$3.7 billion	+$58 million
CDC	$9.2 billion	level funding
Centers for Medicare & Medicaid Services (CMS), administrative expenses only	$3.7 billion	level funding
HRSA	$8.9 billion	+$415 million
National Institutes of Health (NIH)	$48.7 billion	+$929 million
SAMHSA	$7.4 billion	+$65 million

The bill also extends mandatory funding for community health centers, special diabetes programs, the National Health Service Corps, and Teaching Health Center Graduate Medical Education. 

PBM Reforms in the Package 

In one closely watched area of federal policymaking, the FY 2026 package includes a substantial set of PBM-related reforms that largely mirror the bipartisan package negotiated but not enacted in December 2024. These reforms have implications across Medicare Part D, commercial insurance, and employer-sponsored plans. 

The legislation contains the following PBM reforms: 

• Prohibits PBMs from deriving remuneration linked to drug prices for Medicare-covered Part D drugs 
• Restricts spread pricing in Medicaid, eliminating a major driver of PBM revenue 
• Requires contractual transparency, mandating that PBMs clearly define pricing terms in agreements with Part D plan sponsors 
• Adds new PBM reporting obligations, including drug price reporting and rebate disclosures 
• Requires 100 percent passthrough of rebates in ERISA-regulated plans for new, renewed, or extended contracts beginning 30 months after enactment 
• Expands audit rights for plan sponsors 
• Codifies the “any willing pharmacy” requirement for Medicare plan sponsors 

These provisions position 2026 as a consequential year for PBM regulation, increasing transparency, strengthening plan leverage, and heightening HHS oversight. 

Healthcare Extenders and Program Reauthorizations 

The bill includes a broad set of Medicaid, Medicare, and public health program extenders, affecting providers, patients, states, and managed care plans. 

Medicaid 

• Postpones reductions in the Disproportionate Share Hospital (DSH) allotments until FY 2028 
• Changes the DSH cap calculation to broaden which patient costs count toward Medicaid shortfall 
• Requires states to develop and implement a process to allow certain out-of-state pediatric providers to deliver services without additional screening for three years 
• Removes age limits on Medicaid’s Ticket to Work program, allowing adults older than age 65 to participate and requires state compliance by January 1, 2028 
• Establishes new maternity care reporting requirements for rural hospitals, with dedicated federal funding for hospitals and states to comply with the reporting 

Medicare 

Congress extends several key programs and payment provisions, including: 

• Telehealth flexibilities through December 31, 2027 
• Incentive payments for participation in eligible alternative payment models through payment year 2028 (for performance year 2026) and applies an adjustment amount of 3.1 percent for 2028 
• Acute Hospital Care at Home waivers through 2030 
• Low-volume and Medicare-dependent hospital payment adjustments 
• The 1.0 work geographic practice cost index floor used in the calculation of payments under the Medicare physician fee schedule through December 31, 2026 
• Add-on payments for ambulance services 
• Continuation of Part D coverage for certain antivirals and modifications to hospice payment caps 

Behavioral Health Policy 

The appropriations bill was finalized as the administration announced new funding and policy initiatives to support behavioral health, crisis services, workforce expansion, and youth mental health—efforts mirrored in SAMHSA’s increased appropriations. 

SAMHSA’s $7.4 billion budget includes: 

• $1.6 billion for State Opioid Response grants 
• $1.01 billion for the Mental Health Block Grant 
• $535 million for the 988 Suicide and Crisis Lifeline 

Considerations for Stakeholders 

Federal funding and policy developments affect state budget dynamics as many states are now releasing 2026–2027 budget proposals as well as the operational and growth plans of healthcare organizations and partners. 

A few key takeaways from the FY 2026 funding bill include: 

• Federal appropriations signal congressional and administration priorities and have downstream impact on upcoming rounds of grant cycles, including SAMSHA and HRSA awards. 
• The approved funding and certain policy extensions provide operational stability and reduce near-term fiscal pressure, such as the further delay of Medicaid DSH cuts. The extra time will allow healthcare entities to prepare for future reductions and plan for financial sustainability. 
• Agency and program funding emphasize oversight, program integrity, and compliance. In addition, fraud and program integrity priorities are woven into certain new policies and program extensions, including PBM reforms, flexibility for pediatric care across state borders, and rural maternity cost reporting requirements, among others. 

Connect with Us 

If you would like deeper analysis or state and stakeholder-specific effects, HMA’s policy experts are available to assist. 

As of January 1, 2026, nine governors had released proposed budgets for state fiscal year (SFY) 2027. With the phase down of federal funding and substantial policy changes approved in the 2025 budget reconciliation act (P.L. 119-21, OBBBA), these proposals offer insights into how governors plan to manage mounting fiscal pressures, navigate new federal mandates, and position their programs for long-term sustainability. 

Today, Health Management Associates Information Services (HMAIS) published its first preliminary review of proposed SFY 2027 budget proposals. The initial installment includes budgets from Alaska, Colorado, Florida, Mississippi, New Mexico, South Dakota, Utah, Virginia, and Wyoming, with the latter two proposals covering the fiscal 2026–28 biennium. 

HMAIS will release periodic updates as additional governors publish their budget proposals—the same rolling approach we used in 2025 (here and here). Because 15 states enacted 2025–27 biennial budgets last year, HMAIS also might review substantial mid-biennium health-related adjustments or supplemental funding. 

The remainder of this article provides a snapshot of several notable themes and emerging trends detailed in the full report. 

Implementation of New Federal Requirements 

State leaders are preparing budgets for SFY 2027 at a time of heightened fiscal stress and structural uncertainty. Entering 2026, governors are facing reductions in federal funding, particularly in Medicaid and Supplemental Nutrition Assistance Program (SNAP) funding. In addition, they are preparing for new federal requirements that will begin to take effect later this year, including narrower flexibilities for financing and Medicaid community engagement policies and more frequent eligibility redeterminations. 

Against this backdrop, governors are using FY 2027 budget proposals to comply with OBBBA’s mandates and to stabilize their safety net programs and realign state operations around stricter fiscal realities. 

Medicaid Work Requirements. Virginia’s proposed budget includes funding to implement federal Medicaid community engagement requirements, including a recommendation to add nine new authorized positions in SFY 2027 and 12 more in fiscal year 2028 to meet workload demands. In addition, South Dakota’s governor proposed amending the state’s 2026 budget to secure funding to implement these requirements. 

Eligibility and Redetermination. Several governors are proposing investments to support heightened eligibility checks across Medicaid, SNAP, and Temporary Assistance for Needy Families (TANF). For example, Colorado Gov. Jared Polis’s budget proposes $19.1 million to improve the state’s eligibility system for programs such as Medicaid, SNAP, and TANF. Utah’s proposed budget includes a recommended allocation of nearly $16.5 million to the Department of Workforce Services for “H.R. 1 Medicaid Eligibility Administration,” and nearly $10 million for the “H.R. 1 SNAP Administrative Services.” 

SNAP Changes. States are backfilling lost federal funding and investing in error reduction and system modernization. New Mexico Gov. Michelle Lujan Grisham’s proposed budget, for example, includes $37 million to replace the decrease in federal funding for SNAP administration ($4 million of which will support 150 new full-time positions), as well as $8.9 million for systems improvements to reduce payment errors in SNAP. South Dakota Gov. Larry Rhoden’s proposed budget includes $5.5 million to offset a reduction in SNAP federal funding. 

Strategic Cost Containment 

Considering OBBBA implementation and the effects that it will have on their budgets, our first review of governors’ budget proposals signals that states are taking an aggressive posture toward limiting expenditure growth in 2026 and 2027. Initial proposals include targeted reductions, tighter utilization management, and restrictions on benefits. 

Since the 2025 legislative session, Colorado has taken multiple steps to prepare for declining federal revenue. For example, Governor Polis’s proposed budget accounts for multiple actions approved through an amended executive order that would reduce spending to brace for OBBBA’s impacts. Examples include: 

• Reducing provider rates to 85 percent of the Medicare reimbursement rate 
• Establishing limits on Community First Choice services 
• Adjusting the home health nursing and therapy services payment methodology 
• Introducing cost controls for Medicaid benefit categories that have shown disproportionate growth 
• Implementing a $3,000 annual cap on adult Medicaid dental benefits and a $750 annual cap on dental benefits for individuals in the Cover All Coloradans program 
• Changing the Cover All Coloradans behavioral health program from managed care to fee for service 
• Reviewing provider fees in anticipation of possible State Directed Payment approval from the Centers for Medicare & Medicaid Services (CMS) 

Former Virginia Gov. Glenn Youngkin’s budget—now inherited by Abilgail Spanberger following her inauguration January 17, 2026—includes multiple cost-containment proposals, such as: 

• Anticipated adjustments to capitation rates after a review of Medicaid managed care organizations 
• A $2,000 annual limit on adult dental services Medicaid coverage 
• Elimination of both automatic rate increases for psychiatric residential treatment facilities and qualifying addiction and recovery treatment services providers and automatic biennial inflation increases for medical assistance providers 
• Restrictions on emergency maternity services to Medicaid enrollees who are ineligible for Medicaid because of their citizenship status 
• Standardized hourly limits across home and community-based services waivers 
• Actions related to “ensuring appropriate utilization” of services, such as applied behavioral analysis and crisis services 

States are expected to include additional cost-containment tools throughout 2026 and beyond as OBBBA’s fiscal effects become clearer over the coming months and years. 

What to Watch 

The budget proposals indicate the resources that executive agencies need and preview governors’ policy agendas for the year ahead. Stakeholders should track program reductions and rate changes, eligibility system investments, and shifts in care models. 

In addition, some of the announced budget proposals consider federal awards to states under the Rural Health Transformation Program (RHTP). For example, the Alaska Department of Health budget request addresses the state’s RHTP implementation plans, and Wyoming’s budget proposal outlines RHTP priorities. Many states are preparing RFP processes to operationalize their RHTP strategies and make progress on the goals of their initiatives. 

Connect with Us 

As federal funding uncertainties continue, states and other stakeholders will need to adapt their delivery systems, administrative structures, and financing models throughout OBBBA’s multiyear rollout. HMA offers expertise, analytics, and strategic advisory services needed to navigate this evolving landscape. For details contact Andrea Maresca and Kathleen Nolan. 

The full state of the states and governor budget report is available to HMAIS subscribers. In addition, HMAIS maintains a Rural Health Transformation Program (RHTP) Tracker that incorporates details of each initiative and the first year award.