Looming Medicaid cuts outlined in the One Big Beautiful Bill Act are expected to significantly hamper nonprofit hospitals as they work to recover operating margins, Fitch Ratings said in its 2026 sector outlook.
Fitch maintained a “neutral” outlook for nonprofit health systems, citing gradual operating improvements supported by strong balance sheets. Margin gains have largely been driven by lower contract labor costs, declining turnover and improved staffing since 2024, the Dec. 8 report said.
However, the ratings agency warned that improvement remains uneven across the sector and that federal policy changes — particularly H.R. 1 — could drag down gains. While most of the Medicaid reductions included in H.R. 1 take effect after 2026, hospitals are already ramping up efficiency efforts to stay ahead of the impact.
“The sector is resilient amid macro pressures, with margins recovering from post-pandemic lows but still below pre-COVID; Fitch expects continued improvement through 2026 as managements prepare for H.R. 1 cuts, and strong balance sheets provide a buffer,” Mark Pascaris, senior director at Fitch, said.
Hospitals with healthier financials are expected to continue investing in access expansion, technology and patient tower projects. Fitch expects capital spending to rise across the board, with a focus on outpatient care, digital infrastructure and additional access points.
Mergers and acquisitions may also pick up in 2026, as stronger systems look to consolidate market share and expand geographically. Fitch said this growing divide — or credit trifurcation — will likely continue, with some hospitals gaining ground and others facing increasing financial stress, particularly in challenged markets.
Other trends to watch include greater attention to cost control and revenue growth, a rise in capex prioritizing technology, and a shift toward more rating upgrades and positive outlooks, though affirmations remain the most common action, according to the report.
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