Hospital leaders are bracing for another wave of consolidation that could eclipse the sweeping changes spurred by the Affordable Care Act more than a decade ago. This time, the forces at play are more intertwined: lingering post-pandemic financial strain, rising labor and supply costs, and the accelerating need for investment in technology and innovation.

“The Affordable Care Act drove a sharp rise in both hospital consolidation and physician employment by health systems,” said Peter Banko, president and CEO of Baystate Health. “I fully expect the One Big Beautiful Bill Act to have an even more profound impact than the ACA on mergers and partnerships over the next three to four years.”

Despite modest recovery in some areas, health system margins remain under pressure. Persistent workforce shortages, higher medical device and supply costs, and escalating labor expenses are fueling concern that expenses will continue to outpace revenue growth. These dynamics, coupled with anticipated Medicaid cuts, have many hospital leaders forecasting years of financial headwinds.

“Over the next three to four years, I expect hospital consolidation to continue, driven by the convergence of structural and strategic factors,” said Mark Whalen, executive vice president and enterprise chief strategy and transformation officer of Jefferson Health in Philadelphia. “Rising costs – particularly labor, pharmaceuticals and supply chain – are pushing systems to seek scale. At the same time, health systems are making significant improvements in technology, especially AI, creating the need to spread the expenditures across large networks.”

Hospitals are also preparing for the impact of planned Medicaid cuts over the next few years, which could result in $25 billion in annual revenue losses due to disenrollment. According to an analysis from Kodiak Solutions, uncompensated care could rise by as much as $63 billion over the next decade, deepening the financial strain for health systems already operating on thin margins.

“For many health systems, there is just not enough population growth, market share movement and cost transformation to overcome coverage losses in Medicaid and ACA contraction, utilization reduction due to Medicaid cost sharing and state-directed Medicaid reimbursement reductions,” said Mr. Banko. “We envision a future at Baystate that requires tripling the size of our health plan and doubling the size of our physician-hospital network through inorganic growth, and aggressively managing systemness and scale from that growth.”

For regional and academic health systems, expanding their footprint offers a path to greater coordination between flagship facilities and community hospitals. That coordination is increasingly vital as 759 hospitals nationwide remain at risk of closure — a trend that leaves patients traveling farther for care, delaying treatment, and arriving sicker when they do seek help.

The challenge is especially acute in states with aging populations and low historical growth, such as Pennsylvania.

“With patients shifting into government-sponsored insurance programs in ever-greater numbers and healthcare expenses continuing to grow, hospitals will continue to explore mergers and affiliations as a matter of survival,” said Imran Qadeer, MD, president and CEO of Allegheny General Hospital in Pittsburgh. “The kinds of technological, capital and personnel investments required to keep acute care facilities afloat in a competitive healthcare landscape will be increasingly inaccessible for independent hospitals or small systems, especially as insurers themselves continue to consolidate and pursue value-based and risk based contractual agreements.”

Still, not all leaders view consolidation as the only solution. Dr. Qadeer sees hospitals and health systems pursuing innovative partnerships with payers, such as Highmark, to create shared value and improve patient outcomes. For some organizations, the right partnership could offer stability and growth without merging into a larger system.

“The future is not about getting bigger, it’s about getting better and more connected to the people we serve,” said Airica Powell-Steed, RN, interim executive vice president and COO of Loretto Hospital Network in Chicago. “As we shift toward keeping communities well and out of the hospital, the demand for inpatient beds will continue to decline while the need for innovative, comprehensive ambulatory and community-based care models will rise.”

As hospitals navigate this next phase of transformation, leaders expect consolidation to become more strategic and mission-aligned. Partnerships will increasingly extend beyond traditional brick-and-mortar facilities, blending scale with purpose.

“The organizations that thrive will be those that choose to strategically integrate with purpose while aligning scale, health equity and innovation to truly transform outcomes and create healthy communities,” Ms. Powell-Steed said.

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