The country’s nonprofit hospitals have broadly maintained their steady operating performance improvements for another fiscal year, though a new report from Fitch Ratings warns that the “slow and increasingly uneven recovery” could be a high point ahead of crushing policy changes.
“Near-record balance sheet metrics, improving margins and continued year-over-year volume growth were key drivers of the positive trends reflected in the healthcare sector’s 2026 medians,” Fitch Senior Director and nonprofit hospital sector head Kevin Holloran said of the trends in a statement. “However, notable divergence across rating categories and the passage of H.R. 1 raise concerns that fiscal 2025 may represent a brief operational peak before conditions become more challenging.”
In its midyear review of its rated portfolio, reflecting nonprofit, non-pediatric health systems’ audited 2025 financial reports, the agency outlined a median overall operating margin of 1.5%. That’s up from fiscal 2024’s 1.1% median operating margin and above the historical low point of 0.2% in fiscal 2022.
About 67% of the agency’s rated portfolio logged a positive operating margin, compared to 64% and 50% in fiscal years 2024 and 2022, according to the report, which noted that these big-picture margin trends still pale in comparison to pre-pandemic numbers.
Leverage metrics have also improved across much of the sector, Fitch wrote. Median cash on hand was generally stable, declining just three days to 212. Median cash to debt increased from 169% to 188%, and debt to capitalization dropped from about 31% to 29%.
Fitch pointed to a handful of main drivers for the year’s operating gains: ongoing resolution of pandemic and post-pandemic labor stressors, generally strong patient volumes and “proactive management intervention” among hospitals hoping to get ahead of the One Big Beautiful Bill Act’s slew of pressure points through reorganizations and technology deployments.
The bill’s Medicaid stressors include enrollment reductions, work requirements, tougher eligibility recertifications and caps on provider taxes and state-directed payments, which are “expected to become meaningfully effective beginning in 2027,” Fitch wrote.
The legislative headwind—alongside other major challenges such as an aging population, payer mix shifts toward government payers and expense uncertainty due to inflationary pressures like tariff policy—is set to be borne by organizations large and small. However, Fitch warned of substantially divergent resilience within the sector between those in different ratings categories.
Continuing a multi-year trend, Fitch noted that overall balance sheet metric gains “are almost entirely a top-tier phenomenon,” and that organizations with lower ratings experienced declines. Beyond their differences in operating strength, that means that higher-rated organizations have a stronger cushion ahead of the policy changes while their low-rated counterparts, as well as those more dependent on Medicaid, have a “much narrower” window to pursue pre-OBBBA stabilization.
“Fitch's view is that fiscal 2025 may represent a brief operational peak—a period of relative stability afforded by the delay in OBBBA implementation—before a more challenging phase begins,” the report reads. “Fiscal 2027 and beyond may mark the end of the current recovery arc for many providers.”
Fitch’s report also noted a nearly 20-year high in capital spending (143% capex as a percentage of depreciation expense) and predicted accelerating merger and acquisition activity, as “providers will increasingly pool resources, develop joint strategies and pursue affiliation models that provide balance sheet reinforcement and operational scale.”
Hospital and health system dealmaking has been picking up steam over the past couple of quarters. Meanwhile, year-to-date benchmarks suggest that 2026 operating margins have been lagging those of 2025.