As hospitals and health systems navigate Medicaid cuts, rising costs and regulatory hurdles, some have halted, shelved or slowed plans for major expansions in 2026. Many leaders say the added capacity is still needed, but they are reluctant to commit capital now.
The pullbacks follow a year of growing caution. At the beginning of 2026, 1 in 3 U.S. health system leaders told the Deloitte Center for Health Solutions they were uncertain about the year ahead, up from 3% a year earlier. The median hospital operating margin closed 2025 at just 1.3%, according to Kaufman Hall.
Over the summer, health system CEOs told Becker’s they were not shelving growth plans but re-sequencing them, proving one initiative before funding the next instead of pursuing multiple bets in tandem. For some systems, that caution has since gone a step further: walking back major builds altogether.
Most recently, Sacramento, Calif.-based Sutter Health dropped plans for a hospital of up to 200 beds on its Emeryville, Calif., property. The 335,000-square-foot medical center, slated to open in 2032 or 2033, anchored a $1 billion-plus East Bay expansion the system unveiled in February 2025.
The Emeryville site will instead house outpatient services, including primary and specialty care, imaging, lab, pharmacy and outpatient surgery. Sutter is evaluating other East Bay sites for a future hospital but has not chosen one.
Sutter’s reasoning was regulatory rather than financial. The system said two years of pursuing relief under the California Environmental Quality Act did not secure the certainty needed to advance the project, leaving it vulnerable to litigation that could delay construction for years. Changing healthcare needs in the East Bay and community feedback also shaped the decision, according to the system.
“The most significant barrier was the lack of a clear and predictable regulatory path,” Sutter said in an Oct. 30 statement.
The system said the challenges extend beyond Emeryville, citing California’s seismic deadlines and the lengthy reviews and litigation that hospital modernization projects can face. “A different location alone will not resolve these challenges,” Sutter said.
Other systems pointed to financial pressures. In September, Iowa City-based University of Iowa Health Care scrapped plans for a $2 billion inpatient tower and will instead expand and modernize its existing footprint. The system said it is financially stable but is changing course amid reimbursement pressures, rising costs and workforce shortages.
“This is the fastest and most financially responsible way to achieve healthcare access for Iowans given the anticipated financial challenges,” the system said. “The revised approach does not allow UI Health Care to achieve everything planned in the tower, such as new operating rooms and other infrastructure needs, but it addresses important needs more quickly.”
Northern Arizona Healthcare reached a similar conclusion earlier in the year. In February, the Flagstaff-based system’s board stopped evaluating three potential sites for a new hospital. The two-hospital system said it still needs a new facility but has no site or timeline.
“It would be irresponsible to commit to a major capital investment at this time,” the system said in a Feb. 10 release.
Northern Arizona Healthcare expects Medicaid cuts passed in 2025 to reduce its reimbursement by about $50 million a year starting in 2027, with losses compounding to hundreds of millions of dollars over time. The system also pointed to declining payer reimbursement and rising costs for supplies, equipment, drugs, wages and benefits.
Still, the pullbacks are selective. Systems nationwide are still committing to billion-dollar projects, with at least 12 health systems announcing, advancing or finalizing hospital projects worth $1 billion or more in 2026. But as federal Medicaid changes approach in 2027, more leaders are choosing to wait, scale down or build flexibility into projects before breaking ground.
Worcester, Mass.-based UMass Memorial Health, for example, is scaling back rather than canceling. It delayed adding inpatient beds at one campus and redirected investment toward home-based programs, President and CEO Eric Dickson, MD, told Becker’s in July. Dover, Del.-based Bayhealth built “natural off ramps” into its Kent Campus expansion in case fiscal conditions deteriorate more than expected, President and CEO Terry Murphy said.
Even systems pressing ahead are adjusting. Indianapolis-based IU Health’s $2.49 billion IU Health Medical Center is roughly 80% complete and slated to open in December 2027. Rising costs have forced leaders to revise parts of the plan, including dropping underground parking, which cost “way more” than anticipated, Jim Mladucky, vice president of design and construction, told Becker’s in October. Patients and visitors will instead park in the south support building and cross an enclosed pedestrian bridge into the hospital.
“We start with that question of what problem are we solving,” said Erin Pattee, vice president of project planning and operations at IU Health. “We consider whether that change is essential to care delivery, whether it helps our team work more effectively or if it can prevent a larger expense later. We weigh those benefits against the cost, timing and alternative … but not every good idea is necessarily best.”
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