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Hospitalogists,

Today we dive into part 2 of assessing the hospital bear market, headwinds and tailwinds and more. Part 3 is Thursday and we'll wrap it!

By the way, if you want to talk shop on AI and transformation, we're doing so on Friday at 12pm CT. All are welcome!

Dr. Jonathan Slotkin is one of the most thoughtful individuals in healthcare between his work on Capitol Hill with leading the clinician charge on autonomous vehicles and also within Geisinger, both as a neurosurgeon and someone deeply embedded into transforming the integrated health system’s operations from the inside out.

This Friday at 12pm CT, I have an hour to talk with him alongside you guys in an interactive fireside chat.

Register here to join us and talk shop.

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Hospital Economics Sets Sail Into a Bear Market

Christopher Nolan spent his last movie splitting the atom. His new one, in IMAX since this past Friday (I’m seeing it tomorrow by the way, hell ya), spends nearly three hours detailing Odysseus’ journey home to Ithaca past a cyclops, a witch, and thwarting the gods who cannot help themselves.

Healthcare just entered its Oppenheimer moment, a phrase I've been chewing on since Eric Larsen started circulating it, and now here comes the journey. Hospital finance is starting its Odyssey: a long, ugly voyage home where the ship is seaworthy but the crew keeps thinning, the paying passengers keep disembarking, and the gods on Olympus and unpredictable obstacles along the way (CMS and long-term demand, in this telling) are rewriting the charts while everyone's already at sea (or opening a sealed bag of wind. You get the metaphor here).

Here’s the thesis which builds off my HCA article last week: we are entering a hospital bear market - AKA, a difficult operating environment, in 2H 2026 and beyond - and my piece today and Thursday will assess this thesis. My take is that the bear market won't be a collapse, and it won't hit everyone equally, but the operating environment gets materially harder in the back half of 2026, worse before better in 2027, and worst in 2028 when the OBBBA Medicaid provisions land at full force.

Coinciding with recent developments is Vizient's annual Impact of Change forecast, which determines utilization trends 10 years out. I’ll dive into that great data on Thursday as well as part of this whole shindig.

Here’s one takeaway I want to leave you guys with. No matter where you are along your health system’s current operating odyssey, it is more paramount than ever before to lean into your people, invoke meaningful technological change, and get ahead of the CMS hammer before you’re left hanging upside down in Polyphemus’ cave. Or dead to the Sirens. Or trapped by Calypso. You get the idea.

Here's the TL;DR of my thoughts and analysis on the potential looming hospital bear market, and swing points:

• Payer mix is deteriorating, and potentially at an accelerating rate. ACA effectuated enrollment already fell from 22.1M to 19.2M, Experts project a full-year average near 17.5M (, and HCA's Q2 payor mix came in below the bad end of its own scenario range.

• Elevance and UnitedHealth's Q2 results confirm this dynamic. Medicaid is in a trough, Molina expects a 3-year margin rebase from its recent investor day commentary (with some relief coming in 2027), and commercial trend in the double digits. We’ve seen a plethora of market exits on top of this dynamic.

• Medicaid disenrollment is a not-so-stealthy attack on DSH, SDP, and 340B. Fewer Medicaid days lower a hospital's disproportionate patient percentage, which drags Medicare DSH and can knock a hospital below the 340B eligibility line entirely. OBBBA already caps state directed payments and provider taxes, and the new OPPS rule cuts 340B drug payment to ASP minus 33.4%.

• CMS built a deflationary flywheel out of the two fee schedules and gutted orthopedics in the process. The Physician Fee Schedule carries no inflation mandate, so CMS, with its 2030 mandate, seems to be leveraging the fee schedule as a rebasing, deflationary tool for cutting money out of the system. CY2027 claws roughly 7% from orthopedics and reallocates toward primary care and ACO-affiliated E/M. OPPS keeps its market-basket update and finishes dismantling the inpatient-only list by 2029. Meanwhile, proceduralists like orthopedics get hammered by rate cuts in this year’s version of the rate cut merry-go-round.

• Volume is fine in aggregate and soft where coverage bites. Vizient sees outpatient +20% and inpatient +7% over ten years, with inpatient bright spots in cardiovascular, neuro, medicine, and behavioral health. Intuitive's Q2 confirmed some volume softening as well, noting US da Vinci growth slipped to 12% from 14%, concentrated in deferrable and benign cases, and a "modest adverse impact" from ACA subsidy loss.

• Some rafts exist, like the Rural Health Transformation Program. $50B over five years, roughly $200M per state annually, with fund allocations coming over the back half of ‘26 (and beyond) en masse. Use it or lose it.

Polyphemus as Payor Mix Deterioration

Payor mix trends are not on the side of health systems.

ACA Disenrollment

Start with the exchanges. Enhanced premium subsidies expired at the end of 2025, and effectuated ACA enrollment already dropped from 22.1M at the close of 2025 to 19.2M in February, a 13% cut of roughly 3M people once grace periods lapsed. KFF projects the full-year average lands near 17.5M, a 21.5% decline, with downside to 16.5M. Net premiums jumped 58% and the average deductible spiked 37% to $3,786, so the people hanging on mostly traded down to bronze. A KFF survey already found 9% of 2025 enrollees uninsured. Given recent HCA commentary, this trend accelerated faster than expected, and the pickup to employer sponsored plans didn’t fill in any of the holes. Which leads to attrition straight to the uninsured column = bad debt.

Where does ACA enrollment ultimately end up?

KFF noted a potential final figure of 17.5M individuals, or a 17% drop from 2025 all-time enrollee high’s, stemming from a report out of Wakely Consulting Group, which had estimated coverage drops of 17% up to 26%.

• CBO estimates similarly, around 25%.

• If I’m a gambling man: if 3M have already dropped coverage, and HCA noted an acceleration of disenrollment in their markets in advance of Q2 print, it’s going to be worse (unless states swoop in to save the day, where 10 already have done so). Someone set up the Polymarket for this?

Source: ACA enrollment erosion update, xpostfactoid

Notably, for those individuals who kept coverage and paid their premium, many enrollees switched to bronze plans with higher deductibles. From Charles Gaba:

• Nationally, on average, net ACA premiums have jumped by 58% this year vs. last, from $113/month to $178/month, or around $780/year more per enrollee.

• Meanwhile, by my estimates, average out of pocket expenses have jumped by around 46%, or another $716/year apiece.

• Combined, to the best of my calculations, the ~19.2 million Americans who managed to hold onto their coverage through February of this year are paying over 50% more in total healthcare costs...or a whopping ~$1,500 apiece on average.

Additional resources to track ongoing changes and policies affecting ACA enrollment: ACAsignups.net and xpostfactoid.substack.com

Medicare and MA

Layer the other three fronts on top. Medicare and MA keep growing as boomers age in, 55%+ are on MA plans with narrow networks and increased denials, and even FFS Medicare pays at or below cost. Medicaid rolls are shrinking and expected to shrink further (up to 5 million) under OBBBA redeterminations and work requirements. Employer-sponsored coverage, the commercial book that cross-subsidizes everything, is stagnant to declining because…news flash! Healthcare is the only part of the economy consistently adding jobs.

Q2 prints are rolling out, and Elevance raised full-year guidance to at least $27 and called 2026 the trough year for Medicaid, with an operating margin outlook around negative 1.75%. Elevance also exited the D.C. Medicaid market and flagged additional Medicaid exits over the next 12 to 18 months. UnitedHealth's quarter looked like a turnaround, and financially it was, with adjusted EPS of $6.38 against $4.08 a year ago and operating earnings up 55%. Underneath, the mix story is the same. UNH now expects MA enrollment to fall about 1.1M for the year while it defends margin, Medicare trend is running below its ~10% plan on a favorable respiratory season and its own initiatives, and commercial trend is stubbornly above 11% with margin recovery pushed past 2027. Leadership called 2026 a delay to the recovery, not a setback. Their other data point should terrify anyone billing out-of-network under the No Surprises Act: arbiter awards now average 11x Medicare and run up to 30x, with 60% of arbitration cases brought by just five entities. How can we not call the IDR process broken? Obviously this is a payor talking here but…come on, guys.

Molina's investor day was chock full of good information on the Medicaid side of things. Leadership laid out a path from $42B to $64B in premium revenue by 2029 at a 91.5% consolidated MCR (they used to be at 89%, for reference) and $25 of EPS, and framed the current pain as a "temporarily disrupted" fuel line rather than a broken engine. Molina’s business thesis is that managed Medicaid markets are underfunded by 300 basis points, and Molina outperforms the market by 400. Cost trend is running 5% against a historical 3.5% (2 out of 5 Medicaid members are polychronic), healthcare costs are up 21% over three years, and the acuity reset from redeterminations (Medicaid fell from 95M in April 2023 to 77M today) is largely behind us. Another interesting tidbit from Molina’s investor day was that 2026 rates were set on 2024 baselines that straddled the low-trend period, while 2027 rates jump off 2025 data that captures the inflection. So the silver lining among all this turmoil, is that rate relief is potentially coming, in 2027, for the payors which should benefit providers downstream.

Along with the above more recent datapoints, from the volatility we’ve seen a number of strategic exits or pivots:

• BCBS noted its plans have lost 13.5% of enrolled customers in 2026. CareSource exited Indiana (60k members), PacificSource exited 3 states, and Mending to boot

• Centene exited Arkansas and discontinued coverage in New Hampshire

• Cigna plans to exit the ACA altogether in 2027

• CVS exited the ACA as well, and you can see the effect as a microcosm in Banner | Aetna financial results

• Notably, Oscar is taking a contrarian view, leaning into the marketplace and zigging while others zag.

• Finally, several provider sponsored health plans have exited the exchanges. Baylor (100k enrollees), Providence Health Plan unwound its entire operation

With the exits, fewer insurers will cover more individuals.

This concludes part 2 of assessing the hospital bear market, and part 3 will be on Thursday. Enjoy your reprieve, sailors.

ON YOUR RADAR 

• Resource: When building clinical AI, model development is only the first 4%. The other 96% is maintenance nobody budgeted for. Layer Health breaks down the real cost of building vs. buying clinical registry AI.*

• Investment: Eli Lilly has made an equity investment in Oura, betting that the smart ring's biometric data — including GLP-1 usage logs from over 100,000 members — can help address adherence and engagement challenges for chronic disease management.

• Funding: Neko Health banks $700M Series C ahead of U.S. launch. Spotify co-founder Daniel Ek's preventive health venture just raised $700M — pushing total funding north of $1 billion — to bring its 60-minute, full-body diagnostic scan to the U.S., starting with a New York clinic later this year. Sheesh.

• Roundtable: As we approach the Hospitalogy AI Retreat in November, I’ll be hosting monthly expert session roundtables focused on AI and transformation within health systems! Register here for the first one, which takes place at 1 PM EDT this Friday with Dr. Jonathan Slotkin. We’ll be discussing what actually transformed Geisinger, why most digital transformation stalls, autonomous vehicles as the treatment we refuse to prescribe, and where a neurosurgeon puts his own money.

*This read is brought to you by one of my brand partners who help make this newsletter possible!

Thanks for the read! Let me know what you thought by replying back to this email. Potty training is going great, by the way. All engines go...to the potty.

— Blake