Sweeping changes to Medicaid and the ACA are combining with rising health costs to make 2026 a high-stakes year for hospital operators.

Why it matters: While major health systems like HCA are likely to weather the worst, some safety net providers and facilities on tight margins could close or scale back services as uncompensated care costs mount and uncertainty around future policies swirls.

• "We took a big hit in 2025," said Beth Feldpush, senior vice president of policy and advocacy at America's Essential Hospitals.
• "I don't think that the field can absorb any further hits without us really seeing a crisis."

State of play: Last year's GOP tax-and-spending law will decrease federal Medicaid funding by nearly $1 trillion over the next decade, translating into millions more uninsured, lower reimbursements and higher costs for hospitals.

• The Trump administration is also considering big changes to the way Medicare pays for outpatient services that could reduce spending by nearly $11 billion over the next decade, including less for chemotherapy.

Hospitals have the rest of this year to boost their balance sheets, invest in technology including AI, and even consider merger plans before the biggest changes take effect in 2027, Fitch Ratings wrote in its annual outlook for nonprofit facilities. The financial outlook remains stable for the sector overall next year, the report predicts.

Threat level: Hospitals in some instances have started closing unprofitable services like maternity care and behavioral health care in the face of financial pressures.

• More than 300 rural hospitals are at immediate risk of closing their operations entirely, the Center for Healthcare Quality and Payment Reform said last month.
• Safety net providers also are going to court to fight an administration effort to make them pay full price for medicines they currently get at a steep discount and reimburse them later.
• "Those hospitals that have been underperforming ... they are going to continue to struggle," said Erik Swanson, managing director at consulting firm Kaufman Hall.

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Democrats sent Republicans a proposal over the weekend to renew enhanced ACA subsidies for three years, paired with extensions of other expiring health programs, sources said.

Why it matters: Sunday's offer shows there's increasing bipartisan sentiment to address long-stalled priorities like overhauling pharmacy benefit manager business practices — even if prospects for the ACA subsidies are much murkier.

What's inside: The proposal from Democratic leadership and health committees was in response to a GOP offer last week to renew funding for community health centers, certain Medicare telehealth flexibilities and other health "extenders" ahead of a Jan. 30 deadline.

• The underlying package being discussed largely mirrors a bipartisan health deal that was due to be included in a 2024 year-end government funding deal before it was jettisoned at the urging of Elon Musk and then-President-elect Trump, sources said.
• That included PBM measures aimed at lowering drug costs, such as "delinking" PBM compensation from the price of a drug in Medicare Part D.
• There is also a measure addressing Medicare hospital costs that would require outpatient departments to use unique identifier numbers in a bid to crack down on what critics say is overbilling.

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Biotech is dominating the early 2026 deals market, whether that be startup fundings, IPOs or mergers.

• This is a reversal of the usual order, in which biotech plays distant second cousin to the sorts of tech that don't need FDA approval.

State of play: 25 of the 59 venture deal blurbs in Axios Pro Rata so far this year have been for biotech startups, including seven rounds of $100 million or more.

• Eli Lilly and Amgen signed large acquisitions, while Merck reportedly is in talks to buy Revolution Medicines for over $32 billion.

Behind the scenes: Part of this is just a calendar quirk, as biotechs like to make news ahead of the annual J.P. Morgan Healthcare Conference this week in San Francisco. But there are some other converging forces:

• Investors are getting excited about how AI could apply to biotech, in terms of both drug discovery and development. We still don't have an AI-designed drug, but there are candidates in the pipeline.
• The Trump administration is viewed as a light-touch regulator, particularly when it comes to certain classes of new drugs, despite long-term concerns about the future of American scientific research.
• The patent cliff is coming for more blockbuster drugs, with both Merck's Keytruda and Bristol Myers Squibb's Eliquis eligible to go generic in 2028.

The bottom line: Biotech will eventually take a dealmaking backseat but won't be a quiet passenger.

The dropoff in available nursing home beds since the start of the pandemic was more pronounced than previously thought, with rural counties at greater risk of seeing skilled nursing shortages, a review of CMS data showed.

Why it matters: The new findings in JAMA Internal Medicine add to concerns that the health system may not be meeting the needs of an aging population.

• A lack of available beds also can increase the length of hospital stays, because there are fewer options for discharging patients to post-acute care.

What they found: National skilled nursing facility capacity declined by as much as 14% in the first quarter of 2021 and remained 5% below 2019 levels by the end of 2024.

• There was a nearly 6% decline in the number of available beds for new admissions in 2024, compared with 2019.
• Rural counties were far likelier to experience declines of 25% or more in capacity than suburban or urban counties.

Context: A shortage of health care workers and financial challenges are forcing facilities to close or scale back operations.

• An industry report found that by 2024, 46% of skilled nursing facilities were limiting new admissions and 20% had closed entire units due to staffing issues.

What we're watching: How much the Trump administration's immigration crackdown is hitting the long-term care industry, as nursing homes and other providers lose foreign-born employees and struggle to hire.

🏛️ Health Secretary Robert F. Kennedy Jr.'s ideas have made their deepest inroads at the state level, where lawmakers have introduced dozens of bills targeting vaccines, fluoridated water and "forever chemicals." (KFF Health News)

📄 HHS is negotiating with hospital groups and reconsidering a discount drug rebate pilot program that was due to take effect Jan. 1, according to court filings. (Bloomberg Law)

👧🏼 Barbie launched its first autistic doll, developed with autism advocates and designed to reflect sensory and communication differences. (Axios)