Healthcare is at an inflection point. Economic pressures are mounting, reimbursement is compressing, and AI is rapidly reshaping what’s possible — both clinically and operationally. For executives across the country, the question is no longer whether transformation is coming, but whether their organizations are ready for it.
The numbers tell a stark story. The median hospital operating margin closed out 2025 at just 1.3%, based on data from more than 1,300 hospitals — a fragile footing that Kaufman Hall analysts have described as a financial “new normal.” Expenses increased across the board in 2025, while bad debt, uninsured patient volumes and charity care all rose. Meanwhile, Medicare reimbursed hospitals at just 83 cents on the dollar in 2024, resulting in over $100 billion in underpayments, according to the AHA — placing the burden squarely on commercial payers to cover the gap, a dynamic that is increasingly unsustainable.
Many health systems can still hit their margins operating in “business as usual” mode. But leaders who are paying attention see bigger disruption ahead and they’re recalibrating accordingly.
“I think the journey to the future will have both dark and bright spots,” Amy Perry, president and CEO of Banner Health in Phoenix. “I’m concerned about the short term impact of reductions in reimbursement, subsidies and access for many people. Health systems and health plans must invest differently and immediately to create new paths to chronic disease management and prevention education.”
Health systems that once invested in brick-and-mortar expansion and upgrades are now funneling funds into schools, faith-based organizations and community agencies to support wellness and prevention initiatives as the best way to bend the cost curve. They’re also spending on AI and technology to become more precise and efficient with care, develop new therapies and create breakthroughs in treatment for cancer, Alzheimer’s, cardiac care and more to save lives and improve quality of life for their communities.
“The real question isn’t whether we can deliver exceptional care,” said Ms. Perry. “It’s whether we can make these breakthroughs accessible and affordable for everyone, and whether we can shift from waiting until people get sick to keeping them healthy in the first place. That’s what excites me most: moving from a model that rewards treatment to one that rewards prevention and wellness.”
Banner is among the largest nonprofit health systems in the U.S., with more than 33 acute care hospitals, hundreds of clinics, a health plan and 60,000-plus staff members. The health system has a reputation for being on the forefront of innovation and value-driven healthcare. But the next iteration of successful healthcare delivery won’t be easy, or a solitary endeavor.
“It takes partnership and a willingness to reimagine the healthcare business model,” she said.
That mindset – the willingness and resources to change – is creating a transformation divide.
Not all leaders are optimistic about the future or see a clear path forward. The financial challenges seem insurmountable as reimbursement compresses and demand for care increases.
Care is already migrating out of the hospital at a significant pace. In 2020, 52% of hospital revenues came from outpatient services; by 2024, that figure had climbed to 57%, according to the American Hospital Association. Outpatient visits rose nearly 10% year over year in 2025, and that trend shows no signs of slowing. Looking ahead, the AHA’s Sg2 forecasting model projects a 17% jump in outpatient volumes over the next decade, with home health expected to grow 22%.
These factors widen the transformation divide. On one side are organizations leaning into change, rethinking care delivery models, investing in AI and automation, and building the cultural agility needed to move quickly. On the other are those still anchored to legacy approaches that are increasingly misaligned with where care is heading: outside the hospital, into ambulatory settings, and into patients’ homes.
“The future of healthcare has a lot of bright prospects; however, it may feel dark for those faced with the required transformation to take advantage of these opportunities,” said Sandra Scott, MD, CEO of One Brooklyn Health. “The healthcare industry is being transformed by technology, evolving care models and rising expectations from patients and the workforce. Within that disruption lies extraordinary opportunities.”
Top executives have taken their strategic foresight into overdrive to identify those opportunities and maximize them. Some are restructuring their leadership teams and hiring leaders from outside the industry to supercharge the change. Others are relying on industry partners to provide guidance and support. Both require creative thinking and taking risks to realize new results.
“Organizations and leaders who are willing to innovate, rethink how care is delivered and invest in their people will help create a system that is more connected, more accessible and more focused on outcomes than ever before,” said Dr. Scott. “The real divide ahead will be between organizations that adapt and lead the transformation and those that continue relying on models that no longer meet modern expectations.”
Truly embracing that change is easier said than done. Hospitals are “always on” and provide necessary services to the community. It takes incredible effort to instill a culture of nimbleness within legacy organizations to quickly embrace change, evolution, and safely incorporate new models or practice patterns.
“The future of healthcare is bright but will require transformation,” said Robert Chestnut, senior vice president and CFO of Lawrence, Ky.-based LMH Health. “Healthcare will continue to shift to lower acuity settings such as urgent care, ambulatory surgery centers and home-based services that result in better patient outcomes. It will be important for health systems to redeploy capacity to accommodate this shift.”
Clinical workflows and job responsibilities are changing as more care goes outpatient. Hospitals are redeploying team members to virtual support roles, home-based care and surgery centers with a different pace and expectations than the inpatient hospital. AI, automation and ambient technology are also taking on more administrative work so clinicians can focus on relationship-building and treat more patients.
“Health systems will need to rely heavily on [AI and other technology] to manage throughput and staffing,” said Mr. Chestnut. “This is a time for process change that is essential to remain viable. The payer environment will focus on value-based care, so data analytics will be crucial to manage reimbursement. I believe more health systems will look to cooperate across a specific region to provide local care while leveraging volume to gain efficiency and provider collaboration.”
Whether these transitions are successful depends on how top leadership navigates change.
NorthBay Health in San Francisco is in a transformational period. Earlier this year, the system signed a letter of intent to acquire Providence Queen of the Valley Medical Center in Napa, Calif., adding a third hospital. If successful, NorthBay aims to close the deal for the 198-bed hospital by the end of the year.
“Healthcare is facing real pressures, but the future is also incredibly promising,” said Mark Behl, president and CEO of NorthBay Health. “We are entering one of the most innovative periods in medicine, with advances in artificial intelligence, digital health and data transforming how we diagnose our patients. At the same time, we cannot ignore the rising costs that are placing a growing strain on Californians and disproportionately affecting underserved communities, particularly Lantino/x populations. Innovation alone is not enough if patients cannot access or afford the care they need.”
Mr. Behl is focused on adopting new technologies and rethinking care delivery. He sees a more proactive healthcare system designed to provide more equitable care in the future.
“If we align innovation with affordability and access, this moment could represent one of the most meaningful transformations in healthcare in our lifetime,” he said.
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