Northern Arizona Healthcare, a two-hospital system headquartered in Flagstaff, has reaffirmed the need for a new hospital to meet the region’s growing healthcare demands but said it cannot yet announce a site or timeline, citing mounting financial pressures and external challenges.
The health system’s board of directors and executive team concluded that while a new hospital remains necessary, it would be irresponsible to commit to a major capital investment at this time. Hospitals nationwide are facing intensifying financial challenges, including declining reimbursement from government and commercial payers, the board said in a Feb. 10 news release.
A key factor is Medicaid cuts passed in 2025 that the health system projects will reduce reimbursement by about $50 million annually beginning in 2027. Those losses are expected to compound in subsequent years, ultimately totaling hundreds of millions of dollars. The cuts come as the cost of providing care continues to rise due to higher prices for supplies, medical equipment and pharmaceuticals, as well as increased wages and benefits, according to the health system.
The financial headwinds must be weighed against well-documented community needs, including more adult inpatient beds, expanded emergency department capacity, space for modern medical technology and facilities designed to efficiently support safe, high-quality, patient-centered care.
Northern Arizona Healthcare’s 2030 strategic plan identifies both expanding access — including construction of a modern regional referral hospital — and achieving financial and organizational stability as core priorities. Leadership said it is continuing to evaluate how to balance those imperatives to ensure the system can sustain care for the region before, during and after construction of a new facility.
Given the uncertainty around timing and feasibility, the board has stopped due diligence on three potential hospital sites that Northern Arizona Healthcare does not own. Because of nondisclosure agreements, the system said it cannot disclose the locations of those sites or the identities of their owners.
Board members and health system leaders said they will continue discussions throughout 2026 and beyond on how best to address current and future capacity constraints across the system’s existing facilities.
Northern Arizona Healthcare said it will share updates once a substantive decision is made.
