Healthcare providers head into 2026 in a more stable position than they’ve been in for several years. Labor markets have become more favorable, patient volumes have largely recovered from recent lows and operating margins are no longer sliding across the sector.
Still, that doesn’t mean the pressure has eased.
Experts told Healthcare Dive that the year ahead will hinge on execution. Health systems that use the current favorable environment to address costs, workforce planning and portfolio strategy may be better positioned as reimbursement headwinds intensify. Those who don’t may find their options narrowing.
“It’s a neutral outlook,” said Mark Pascaris, senior director and analytic lead for nonprofit hospitals at Fitch Ratings. “But that doesn’t mean it’s a passive one.”
Margins improve, giving leaders a short runway to act
Fitch expects 2026 to look much like 2025 for most hospitals, with modest margin improvement and fewer sudden shocks to the bottom line. Labor costs have stabilized as hospitals rely less on expensive contract labor, including travel nurses and other agency staff. Inflationary pressures have also cooled compared to recent years.
Chris George, managing director and leader of the health systems practice at Alvarez & Marsal, said the shift has given management teams something they’ve been missing: predictability.
“That allows organizations to spend less time reacting and more time focusing on what they actually need to fix,” George said.
Many systems are using that clarity to accelerate efficiency efforts — not because major revenue cuts are hitting today, but because leaders know they’re coming. The expiration of the enhanced Affordable Care Act subsidies, as well as looming Medicaid cuts, threaten to upend hospital finances and disrupt operations.
“Management teams are looking at [the One Big Beautiful Bill Act] and saying, ‘We’re already on a path to streamline and be more efficient. We need to move faster,’” Pascaris said, referring to the federal budget law expected to drive Medicaid reductions over time.
Those cuts won’t affect provider revenue significantly until 2027, as they phase in over several years. That timing matters.
“This is the time to get it right,” Pascaris said. “That comes up in almost every conversation we’re having.”
Underperforming systems face hard questions
With volumes back and labor pressures easing, it’s becoming harder to explain persistent losses.
“If an organization can’t generate acceptable results in this environment, that’s concerning,” Pascaris said. “It’s going to be much harder when the next wave of cuts arrives.”
Boards of directors, lenders and rating agencies are increasingly focused on whether leaders are making structural changes rather than waiting for external relief, George said.
“There’s less patience for explanations that assume things will simply improve on their own,” he said.
Fitch expects a well-run health system to generate operating margins of 3% to 5% in good years, underscoring how little room for error there is.
“No margin, no mission,” Pascaris said. “This is a very low-margin business.”
More M&A conversations, fewer rescue deals
As operating performance improves, many systems are taking a closer look at how — and whether — they deploy capital.
Tariff uncertainty and broader economic risks are making it more difficult for hospitals to underwrite large construction and equipment projects, particularly for organizations carrying higher debt loads, according to Pascaris.
That uncertainty is reinforcing a shift toward capital discipline, with leadership teams prioritizing investments tied directly to access, efficiency or margin improvement rather than large-scale expansion.
The same dynamic is shaping deal strategy. Systems with limited balance sheet flexibility have fewer options, while stronger organizations are becoming more selective about where they deploy capital — whether internally or through acquisitions.
But thanks to relaxed federal oversight under the Trump administration, Fitch expects M&A activity to pick up over the next several years.
Hospital leaders are increasingly exploring partnerships that could improve scale, reduce overhead or strengthen negotiating leverage with payers, Pascaris said. While not every discussion will lead to a transaction, Fitch expects more letters of intent and formal partnership discussions to begin in 2026.
At the same time, stronger systems are showing little appetite for taking on distressed partners without a clear financial rationale.
“Yes, we’re looking for partnership opportunities,” Pascaris said. “But we’re not looking to rescue folks. It has to be immediately accretive, or there has to be a very clear plan to get there.”
For struggling systems, that reality limits the pool of potential partners.
“If you’re coming from a position of weakness — losing money, limited liquidity — it’s going to be harder,” Pascaris said.
Workforce pressures shift
The provider workforce looks different than it did two years ago. Acute shortages have eased in many markets, agency use has declined and wage growth has moderated.
But Gayle Lee, senior director of workforce policy at the Association of American Medical Colleges, said longer-term supply challenges remain unresolved.
“We’re moving from short-term disruption to long-term imbalance,” Lee said.
Physician shortages, especially in primary care and rural areas, continue to pose risks. Immigration policy remains critical, with H-1B visa fees set to rise to $100,000 and international medical graduates accounting for a significant share of the workforce in underserved communities.
At the same time, providers are rethinking how they distribute work across care teams, expanding the roles of advanced practice providers and seeking ways to reduce administrative burden.
“Technology can help,” Lee said, “but it doesn’t replace people. It forces organizations to be more deliberate about how they use them.”
AI adoption becomes more selective
AI continues to dominate healthcare discussions, but the tone has shifted from experimentation to return on investment.
Anders Gilberg, senior vice president of government affairs at the Medical Group Management Association, said providers are now asking where AI tools deliver concrete value.
“The question is where this actually saves time or money,” Gilberg said.
Documentation support, revenue cycle management and scheduling tools are among the most common early use cases. Larger systems are moving faster, while smaller practices remain cautious about cost, compliance and liability.
“There’s interest, but there’s also hesitation,” Gilberg said. “Nobody wants to move first and regret it.”
The HHS recently asked the healthcare industry how it could speed AI adoption by using its powers to improve patient and caregiver experiences and outcomes, reduce provider burden, improve quality of care and lower healthcare costs.
Regardless, healthcare providers should focus on what they can control.
“The fundamentals are going to matter,” Pascaris said.
