It’s March Madness for Hospitals

Hospitals represent 31% of total health spending in the U.S. They directly employ 52% of the nation’s 1.1 million physicians and 44% of the 18 million in the healthcare workforce. Many operate ‘related’ businesses including insurance companies, nursing home and long-term care services, fitness facilities and some are investors in private equity funds and joint ventures pursuing innovations in care delivery and more,

“Hospital administration” was once a pursuit of civic-minded youth armed with MHA degrees and internship experiences. Today, it’s much more. It’s bigger, more complicated and more stressful. And,it finds itself in the spotlight while facing formidable headwinds as never before:

• Medicaid cuts in One Beautiful Bill impacting finances in every hospital, especially in rural settings.
• Higher operating costs for labor and prescription drugs (with Most Favored Nation pricing yielding little to date).
• Growing disputes with corporate insurers over reimbursement rates, network adequacy and prior-authorization stipulations.
• Increased demand and use of outpatient services as chronic conditions supplant acute episodes as drivers of utilization.
• Increased attention to affordability (with healthcare a top concern along with housing, gas and groceries and hospital prices the biggest component).
• Increased anxiety among physicians (many facing maturity-cliff pressures from their private equity owners).
• Higher costs for capital (debt) to fund technology, facility and programmatic initiatives.
• And growing public dissatisfaction with the U.S. health system and its most prominent players—hospitals, insurers, and drug companies.

Three March events have compounded the environment for hospitals:

• The War in Iran precipitated higher gas prices and intensified political brinksmanship about ‘costs of living’ in which hospital costs are a frequent referent.
• A cautionary set of 1Q 2026 economic reports (Jobs, CPI, U of M Index of Confidence) produced a sobering assessment by the Federal Reserve that the U.S. economy is unhealthy due to uncertainties at home and abroad. Note: the Jan-Feb BLS jobs reports showed a dramatic slowdown in employment and unprecedented lower hiring in healthcare.
• And, with bipartisan support, the FTC and Congress launched hearings about hospital consolidation signaling regulatory/legislative changes afoot. Notably: in March, FTC and Congressional Committee hearings featured staff reports blaming hospital consolidation for higher costs that increased hospital leverage over insurers and suppliers as the primary impetus and higher costs for communities.

For hospitals, this is March Madness! Strategies to manage demand, reduce costs and leverage favorable operating margins (enjoyed by some) need refreshing because the environment has fundamentally changed. Governing boards and C suites in hospitals face some tough questions about how, and how fast their environment will change.  The Big C’s (Costs, Corporatization, Competition, Compliance, Capital, Coverage) are a useful place to start:

Costs: Likely Direction: to control and lower total costs of care while supporting overall economic growth.

• How might costs associated with related administration/ownership of unrelated businesses be accounted? Are GAAP directives adequate to accurate understanding of a hospital’s finances?
• How might the administration’s effort to lower drug costs impact the hospital drug supply chain? How might 340B discounts be modified to enable the administration to more directly target manufacturers and PBMs with lower-your-price-or else’’ price initiatives? How will the Most Favored Nation pricing initiative be expanded? (only 54 drugs covered today with nominal impact on their prices)? How could Trump Rx be factored in the hospital drug procurement (Trump Rx has only 8 manufacturer participation agreements to date but sees integration is hospital procurement a major opportunity).
• How will AI-enabled point and platform solutions be integrated for maximum cost-reduction benefit? Might the federal government break the interoperability log-jam and mandate standardized solutions for hospital HIT?
• How might hospital price controls for IP/OP services impact the organization? Will they be state-imposed or federal?
• How does the hospital define affordability to optimize consumer decision-making? Are underlying assumptions about costs, prices, cost-shifting, bad debt, capital obligations et al readily accessible in communities served? Should hospitals be penalized for lack of affordability?
• How should employed physicians, mid-levels and clinical staff be compensated to maximize effectiveness? How should senior management be compensated? What factors beyond financial performance are necessary to accurately assess their performance?

Corporatization: Likely Direction: to enable coordination of cost-effective care via private sector systemization and technology.

• How do community leaders, business leaders and influencers (non-members of governing boards) view the hospital’s mission, vision, values and use of funds? How does the Board and management assess the unique advantages and disadvantages of its ownership status (system/non-system, for-profit/NFP, et al)?
• Will Congress do away with employer contributions and source Medicare funding from individual taxpayers instead? Will means-testing be the basis for Medicare premiums and funding?
• How does the Governing Board evaluate the performance of the CEO? Are non-financial factors incorporated? Is compensation of the CEO consistent with Board expectations for short and long-term sustainability, growth, cultural health and financial performance?
• Where should hospitals growth strategies focus if increased concentration of core businesses (IP and OP care) is constrained by FTC and DOJ rulings?
• How would a system of health be structured and operate if improvement in population health was the sole objective? Would capital be appropriated toward a balance of primary and preventive health and services for the sick or ill? Is corporatization by hospitals inconsistent with mission-driven purpose?

Competition: Likely Direction: to increase competition by expanding choices for consumers.

• Is competition across each line of business monitored objectively? Is diversification beyond core patient care activity necessary and appropriate for the hospital?
• How will physician/alternative care provider competition impact the hospital? How might changes to anti-kickback (Stark et al) regulations impact physician participation in hospital shared savings programs?
• How will elimination/modification of state CON requirements modify the competitive climate?
• Will community benefits and charity care be re-defined? How might investor-owned hospitals and not-for-profit hospital compete under new metrics?
• How will hospitals compete against physician-owned hospitals is current prohibitions are lifted?
• How might competition between publicly-traded investor-owned and not-for-profit health systems evolve is SEC financial reporting requirements are reduced to twice yearly? How will state and federal legislators and regulators effectively monitor performance if shielded from performance transparency?
• How might 990 reporting requirements change to enable state/federal regulators and communities to more objectively assess hospital performance, executive compensation and community benefits?
• Might charity care for all hospitals be re-defined and specified targets re-visited to verify performance and facilitate alignment with public interests?

Compliance: Likely Direction: increased enforcement to reduce high levels of waste and fraud.

• How will increased federal regulation around fraud, waste and abuse impact each business relationship and transaction of the hospital?
• How are indirect administrative costs associated with independent physicians, and ancillary providers captured and accounted? Do they adhere to current anti-kickback laws?
• How might HHS changes to vaccine policies impact standards of care approved by the hospital medical executive committee? How might credentialling of providers be impacted? Might the hospital sued by community members/clinicians who disagree with new vaccine policies?
• How will new CMS anti-fraud efforts in 10 states (8 Blue, 2 Red) impact services and payments for enrollees using hospital services? Will these provisions expand to other states? Widen to hospital-employed physicians?
• How will hospital tax exemptions be modified to align with direct community health benefits? Are tax exemptions likely to be cut for not-for-profit hospitals/health systems?
• Is overbilling in autism services provided by hospital-affiliated clinicians a likely target of potential fraud investigation by state authorities?
• How will federal requirements for increased price transparency be expanded or modified to facilitate competition? Will states expect more?
• What is the hospital’s evidence for promotion of its quality of care? Is evidence-based science the primary basis for dispute resolution? Credentialling? Clinical process improvements? Are outcomes, clinical process improvements, root-cause analyses, disciplinary actions and clinical innovations adequately discussed by the hospital governing Board?
• How might the FTC’s new Task Force on Consolidation impact pending consolidation plans (i.e. Sutter-Allina announced this week and others)? Might the FTC force local systems to divest/restructure where monopolistic behavior by hospitals has been harmful to public interests?

Capital: Likely Direction: expansion of opportunities for private investors in healthcare.

• How might/will cutbacks in federal funding for Medicaid and Medicare impact the hospitals solvency and liquidity?
• How will interest rates on debt change as a result of current uncertainty about global security (Iran, Ukraine, Venezuela, et al)? How will bond ratings be impacted?
• How will increased state/federal policies limiting PE ownership or operation of hospitals impact access to capital for the hospital? Its related businesses?
• How will the approaching private equity maturity cliff impact hospitals, physicians and other healthcare entities in the market?

Coverage: Likely Direction: to transition insurance coverage to individual policies that require informed consumer engagement.

• How will mandatory participation in alternative payment models (ACOs, bundled payments) impact the hospital?
• How should the hospital reimbursement policies be modified if Medicare & Medicare under-payments are disallowed as a community benefit?
• What is the likelihood voters will pass ‘’Medicare for All’ in 2028?
• How should insurance regulation stimulate demand for individual high-deductible plans?
• How are local public health programs integrated into the hospitals primary and preventive health community benefits? Is the hospital pursuing a “Health and Human Services” strategy or reinforcing the “Health or Human Services” status quo?
• How will states enact/respond to OB3 elimination of marketplace subsidies? Will employers drop/significantly alter employee benefits to lower their costs? Might the employer tax exemption be eliminated by Congress as a means of lowering the federal deficit and shifting healthcare spending to a consumer (B2C) market?
• How should hospitals enable effective consumer shopping for appropriately priced necessary hospital services? Is it a hospital’s obligation?

These are not comprehensive but they’re directionally accurate: the future for hospitals is not a repeat of the past. The market has fundamentally changed.

The blame and shame game played by the industry’s major sectors—hospitals, insurers, drug companies—has not made life better for the citizens it serves. The public’s asking for something better, and elected officials are on their side.

March Madness is reality for hospitals. It requires fresh thinking and uncomfortable adjustments. It’s not optional.