Rural health system IT leaders are bracing for financial strain tied to reimbursement cuts under HR 1, the budget reconciliation law signed by President Trump in July 2025 that includes sweeping reductions to Medicaid funding and eligibility.
Early signs point to deferred infrastructure investments and a cautious stance on AI. While several of the law’s most significant provisions are still being phased in, Joshua Daugherty, director of information security and technology at Hillsdale Hospital (Mich.), said the uncertainty is preemptively shaping budget decisions.
“At this point, the reimbursement cuts have not directly hit yet. They are more like a specter hovering over us,” he told Becker’s. “In anticipation of the coming reductions, we are budgeting conservatively.”
With 68% of Hillsdale Hospital’s patients covered by Medicare or Medicaid, he added, “next year, I anticipate, will be worse.”
Mr. Daugherty postponed a planned $500,000 server replacement project after costs nearly doubled due to market pressures.
“Combining the price increases with the looming reimbursement cuts, I opted instead to retract my capital request,” he said.
His team is now extending the life of the hospital’s existing infrastructure through alternative software.
“The new software should double the lifespan of my servers and save roughly $1.5 million over the next five years,” he said. “There will be no impact on patient care due to this. There will be a lot more work in the near future for my system administrator and me.”
Deb Carpenter, PhD, CIO of TriState Health, described a similarly conservative posture at her organization.
“I don’t expect to see immediate reductions to IT, but more of a shift toward maintaining operations instead of advancing them,” she told Becker’s. “As a result, we will likely continue to defer capital investments in infrastructure and nonessential upgrades.”
The consequences are already visible.
“We are already seeing delays in hardware refresh and infrastructure improvements,” Dr. Carpenter said. “There is an indirect impact to patient care by potentially having more downtime and slower performance.”
She added that postponing upgrades can also limit adoption of newer capabilities, including interoperability and decision-support tools that could improve care delivery.
When it comes to investing in AI, both leaders said the national enthusiasm around the technology does not fully reflect rural realities during a time of reimbursement cuts under HR 1.
“AI is here. There is no avoiding it or hiding from it,” Mr. Daugherty said, but emphasized it is “nowhere near my top priority.” He pointed to AI as a potential threat vector: “Information security is always my top priority, and AI is a huge potential threat to my data.”
Hillsdale has formed an AI committee and implemented governance policies, but Mr. Daugherty urged the broader industry to slow down.
“AI is a bubble. There is too much money getting dumped into it with little to no returns on investments worldwide,” he said. “Let’s make sure that if we are going to invest in AI systems, that they will be around for years to come.”
He also flagged security and regulatory uncertainty as ongoing concerns, particularly around data access and vendor accountability.
Dr. Carpenter echoed the tension between AI’s promise and operational realities.
“AI is a top priority for many organizations, but the reality for many rural and critical access hospitals is that our priorities tend to be more focused on stabilization, security and regulatory compliance,” she said.
Rather than large-scale AI investments, TriState is pursuing incremental use cases embedded within existing platforms.
“We are very interested in embedding AI into existing platforms where we can deliver value without requiring significant upfront investments,” Dr. Carpenter said, pointing to opportunities to reduce administrative burden and extend staff capacity.
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