Key Takeaways
- HHS was restructured in March 2025 under DOGE directives, reducing its workforce, eliminating positions and consolidating divisions.
- New CMS leadership has brought focus to telehealth, AI integration, rural transformation, and value-based care modernization.
- The dual reality of deep federal spending cuts alongside significant new tech investment creates both risk and opportunity for HealthTech investors — and understanding the difference matters.
Washington, D.C. rarely reshapes healthcare overnight. But 2025 may be the exception. Within weeks of taking office, the Trump administration unleashed a cascade of changes at the country’s largest health agency — cuts, restructurings, new leaders with unconventional backgrounds, and a bold bet on technology as the answer to systemic inefficiency. The question for HealthTech investors isn’t whether these changes are good or bad. It’s what they mean for where healthcare dollars flow next.
We previously covered how the One Big Beautiful Bill and its nearly $1 trillion in Medicaid cuts create both profound challenges and new openings for HealthTech. This article builds on that foundation by examining what the parallel restructuring of the Department of Health and Human Services (HHS) — and the arrival of a new, outspoken CMS Administrator — means for the companies and investors in this space.
Disruption at HHS
On March 27, 2025, Secretary Robert F. Kennedy Jr. announced a sweeping restructuring of the Department of Health and Human Services (HHS) under President Trump’s Department of Government Efficiency (DOGE) initiative. The plan: slash the department’s headcount from 82,000 to 62,000, consolidate 28 divisions into 15, and halve the number of regional offices from ten to five. The stated rationale was eliminating redundancy — Kennedy pointed out that HHS had over 100 communications offices, 40 IT departments, and nine HR divisions across its agencies, many of which operated in silos.
The execution, however, was messy. When termination notices went out on April 1, 2025, the rollout was characterized by confusion and errors: notices sent to the wrong offices, references to departments that no longer existed, and entire units eliminated that were legally mandated by Congress. The CDC’s Lead Poisoning Prevention and Surveillance Branch — which was scheduled to respond to an active crisis in Milwaukee schools — was cut entirely. Kennedy later acknowledged the CDC division was among the cuts made in error, framing the process as intentional rapid action with expected corrections: “We’re going to do 80% cuts, but 20% of those are going to have to be reinstated because we’ll make mistakes,” he told reporters.
The fallout was significant. Twenty state attorneys general filed suit against Kennedy and the administration, claiming the cuts were “reckless” and would impair the country’s ability to respond to public health crises. FDA vaccine programs were disrupted. The World Trade Center Health Program was left without doctors to certify new illnesses. By late 2025, rather than the stated goal of 62,000 employees, HHS had actually reached approximately 79,717 staff members — a 10% reduction, not the 25% that was planned.
The proposed “Administration for a Healthy America” (AHA) — Kennedy’s signature structural initiative intended to consolidate programs around chronic disease, addiction, and maternal health — does not yet functionally exist. As of early 2026, there is no public timeline for its creation, and programs that were supposed to be folded into it have instead simply been eliminated.
For HealthTech investors, the lesson from the HHS overhaul is a familiar one from our previous analysis of the One Big Beautiful Bill: structural disruption creates market gaps. When federal programs are eliminated or destabilized, private-sector solutions often move in to fill the void.
Changes at CMS
On April 3, 2025, the U.S. Senate confirmed Dr. Mehmet Oz as CMS Administrator in a 53-45 party-line vote. The cardiothoracic surgeon, Harvard- and Penn-educated physician, and former television personality now oversees a $2.6 trillion agency that provides health coverage to more than 160 million Americans through Medicare, Medicaid, CHIP, and ACA marketplace plans. It is one of the most consequential healthcare roles in the world.
Dr. Oz moved quickly to articulate a clear pro-technology agenda. Speaking at the Aspen Institute in October 2025, he emphasized digital transformation, AI integration to improve efficiency and care customization, and fraud prevention as core pillars of his approach. At the J.P. Morgan Healthcare Conference in January 2026, he made a recruitment pitch to healthtech entrepreneurs and investors directly: CMS wants partners who can help modernize a system built on outdated infrastructure. CMS even issued a formal Request for Information (RFI) seeking input on replacing its entire Medicare claims processing system with a real-time, cloud-based platform.
A comprehensive list of the most notable CMS actions under Oz’s tenure are catalogued by Becker’s Hospital Review.
The $50 Billion Rural HealthTech Bet
Perhaps the most significant near-term investment opportunity created by the current administration is the Rural Health Transformation Program (RHTP) — a $50 billion, five-year initiative embedded in the Working Families Tax Cut Act in 2025. CMS is distributing $10 billion annually across all 50 states, with half allocated equally and half awarded competitively based on merit. All 50 states submitted applications.
What makes this program notable for HealthTech investors is the explicit endorsement of specific digital infrastructure. CMS’s guidance directly signals funding priority for: AI documentation tools (ambient scribes and clinical workflow automation); telehealth platforms enabling hub-and-spoke specialist access; cybersecurity infrastructure for rural hospitals; and interoperable data systems connecting clinics, hospitals, and payers.
The state proposals themselves signal where the tech opportunity lies. Alaska is investing in drone medication delivery to remote regions. Alabama has funded the use of robots for performing prenatal ultrasounds in counties with no OB-GYN care. Texas and Hawaii are building statewide telehealth infrastructure. As Dr. Oz framed it at the J.P. Morgan Conference, the goal is not to pay existing bills — it’s to “right-size” care using technology already proven in urban settings and extend it into underserved geographies.
Critics, however, have raised legitimate concerns. The American Hospital Association’s CEO Rick Pollack pointed out that the Medicaid cuts from the same legislation far outpace the RHTP funding: $1 trillion in Medicaid reductions over ten years versus $50 billion in RHTP grants over five years. The math creates a structural tension that HealthTech companies and investors must factor into their models: the technology mandate is real, but the patient volume and revenue base supporting that technology may be eroding at the same time.
The Dual Tension: Disruption and Opportunity
The overarching narrative of the 2025 federal health policy environment is a genuine paradox. The same administration that cut 20,000 HHS employees and eliminated entire public health programs is also directing billions of dollars toward HealthTech modernization and explicitly inviting private sector companies to participate. For investors, navigating this requires holding both truths simultaneously.
Where the Risks Are Real
- Regulatory instability: With core HHS infrastructure disrupted and legal challenges ongoing, the environment for federal guidance and rulemaking is unpredictable. Companies that rely on clear, consistent CMS policy signals face execution risk.
- Reduced data infrastructure: Cuts to healthcare research and staffing reductions threaten the health data and outcomes research that HealthTech companies depend on to validate their products.
- Patient volume risk: As the One Big Beautiful Bill reduces Medicaid enrollment. HealthTech platforms serving lower-income populations face a shrinking addressable market in the near term.
- Public-private dependency: Companies built around federal reimbursement models (e.g., digital therapeutics seeking Medicare coverage) may face delays or reversals as CMS priorities shift.
Where the Opportunities Are Emerging
- Telehealth infrastructure: Dr. Oz has spoken consistently about securing long-term telehealth reimbursement stability and views virtual care as central to CMS’s modernization agenda. Companies with proven, scalable telehealth platforms are well-positioned.
- AI-powered clinical workflow tools: Ambient documentation, AI scribes, and clinical decision support are explicitly named in RHTP guidance. CMS is effectively de-risking adoption by directing state grant funding toward these categories.
- Rural healthcare technology: The RHTP creates a five-year funded pipeline for companies offering remote monitoring, drone logistics, diagnostic AI, and hub-and-spoke specialty access platforms.
- Revenue cycle management and fraud detection: CMS has signaled aggressive expansion of Medicare advantage plan audits and fraud prevention tools. Revenue cycle management (RCM) companies and AI-driven billing platforms are natural beneficiaries.
- Preventive care platforms: Both Kennedy’s MAHA (Make America Healthy Again) agenda and Oz’s chronic disease focus create a policy tailwind for companies in metabolic health, nutrition technology, and behavioral health.
Investment Considerations
Healthcare has always followed a different economic path compared to other sectors, as we explored in our piece on why healthcare is recession-proof. The current policy environment adds a new wrinkle: federal disruption as a forcing function for HealthTech adoption. When public health infrastructure weakens, the imperative for private-sector, tech-enabled solutions strengthens.
For portfolio positioning, consider the following:
- Companies with existing CMS reimbursement coverage or that are explicitly named in RHTP-aligned technology categories (e.g., telehealth, AI scribes, cybersecurity, remote monitoring).
- Companies heavily dependent on Medicaid patient volume or federal research funding will likely remain under structural pressure.
- Review the CMS Innovation Center’s new model pipeline. The administration has signaled a focus on value-based care, direct primary care, and nutrition-focused models — each of which creates revenue opportunities for HealthTech enablers.
- States disclosing their funded proposals provide a forward-looking roadmap of where federal capital will flow for RHTP grant recipients from 2026 to 2030.
- Legislative and judicial decisions could restore programs, slow implementation, or create new compliance requirements for companies operating in federal health markets.
Conclusion
The new Washington is not simply pro-market or anti-healthcare. It is simultaneously slashing the public health infrastructure that has supported this country for decades and making the largest federal HealthTech investment in history. Understanding that paradox — not just one side of it — is the starting point for making sense of where this market is heading.
For HealthTech investors, follow the federal signals toward telehealth, AI-powered clinical tools, rural infrastructure, and preventive care platforms. At the same time, apply real scrutiny to companies whose business models depend on the stability of programs that are now demonstrably unstable. The window for technology to fill the void left by federal retrenchment is opening. The best-positioned companies will be those that can move quickly, prove clinical value, and operate efficiently in a cost-conscious environment.
Health is still human. But in 2026, its delivery system is being rebuilt in real time.
Sanjana Vig MD, MBA
Dr. Vig is a co-founder and Chief Marketing Officer of Langar Holdings. She is a board-certified anesthesiologist specializing in Perioperative Management. She is also the founder The Female Professional, a website geared toward empowering professional women in life and their careers.
