Hospitals see hope and headwinds in 2026

A host of health systems made presentations at the annual J.P. Morgan Healthcare Conference in San Francisco.

Steve Wasson, chief data and intelligence officer for Strata Decision Technology, attended the conference and was struck by the confidence displayed by nonprofit hospital systems in their presentations.

Most of the health systems were “relatively positive,” Wasson tells Chief Healthcare Executive®.

Some health systems had solid years in 2025, and are optimistic about the year ahead.

“A lot of them had pretty good years when you looked at their growth, their margin, their capital positions …. and a lot of them were sort of riding that into 2026,” Wasson says.

Hospitals made some modest gains in the later part of the year. The national median year-to-date operating margin rose from 1.2% in October to 1.5% in November, according to Strata’s data.

Still, those gains are uneven, and some health systems are facing more troubling forecasts for the year ahead. There is a wide disparity between health systems that are strong and those that are dealing with financial difficulties.

“There's a big gap between the 25th percentile and the 75th percentile,” he says.

And there are some headwinds that are going to cause problems for hospitals, he says.

Affordable Care Act

Health systems are expecting to see more uninsured patients with the expiration of tax credits supporting the Affordable Care Act. Millions of Americans could lose health insurance coverage, with some being unable to afford premiums that are doubling.

“That moves people from an insured position to an uninsured position, which is never great for providers,” Wasson says.

It’s unsure how many will lose coverage, he says, adding, “If it's a high percentage, that's going to have an impact to some of the organizations.”

Expenses

Hospitals are seeing labor costs rise, but their expenses for supplies, including prescription drugs, are rising at a faster clip.

“Supplies, non-labor cost inflation at the health systems have definitely outpaced labor,” Wasson says.

“The drug cost increases have been substantial,” he adds.

In November, drug expenses rose 9.3% year-over-year, and total-non labor expenses were up 5.5% compared to a year ago, according to Strata’s data. Meanwhile, labor costs rose 3.6% year-over-year in November.

With an aging population, hospitals likely need to brace for higher drug expenses moving forward, Wasson says.

Unemployment

The unemployment rate remains historically low, but “the economy is soft in a lot of ways,” Wasson says.

Health systems and hospitals should be paying attention to the unemployment rate. If it rises above 5%, that could lead to an uptick in uninsured patients coming to hospitals for treatment, Wasson says.

In addition, some Americans who may typically go to health systems for some procedures (such as a hip replacement) would likely delay them if they are out of work.

If there’s a notable bump in unemployment, “that would change the outlook for some of the positive volumes,” Wasson says.

Medicaid

Hospitals have warned that changes to Medicaid will also lead to millions more losing coverage, and could lead hospitals to reduce services or even close.

Some of the big changes won’t happen right away. But new work requirements take effect next year, and states are also facing changes in how they can fund their Medicaid programs. So some health systems are taking steps now, including reducing staff and scaling back services.

“People are preparing,” Wasson says. “They're moving their operation in anticipation of looking closely at their service lines, which ones they need to move away from, potentially, or partner differently.”