A group of health systems has begun to act — quietly, but with unusual urgency.
Their focus is not surprising at first glance: cost discipline. But a closer look reveals something more telling. These organizations are not concentrating solely on labor, clinical operations, or med-surg supplies — the traditional levers. They are moving aggressively into an area many hospitals have managed less rigorously: indirect, non-clinical spending.
That shift is not incidental. It’s a response to what’s coming.
A Policy-Driven Shock — Unlike the Last Cycle
Health systems have dealt with margin pressure before. Labor inflation, utilization disruptions, reimbursement tightening — each demanded a response, and over time, the industry developed a familiar playbook.
This time is different.
The combination of OBBBA and related federal policy changes creates a multi-year, policy-driven financial shock that is more elemental than cyclical. It does not depend on a recession, a pandemic, or a temporary dislocation in volumes. It is the consequence of deliberate changes to coverage, Medicaid eligibility, and financing mechanisms that have long supported provider economics. And it arrives while hospitals are already operating with thin margins.
Kaufman Hall reported that hospitals ended 2025 with an adjusted operating margin of roughly 1.3%, while also warning that bad debt, uninsured patients, charity care, and reliance on public payers were increasing. There is limited room to absorb more pressure.
CFOs must understand: 2026 is when the headwind shows up – not when it peaks.
So what happens next?
Projected coverage will not stay flat. They increase gradually in 2026, then rise sharply in 2027, with continued worsening through 2028 and 2029. That progression matters. It means 2026 is not just a new benchmark; it is the leading edge of a much more severe margin cycle.
For CFOs, the implication is straightforward. If 2026 is the year the headwind becomes visible, 2027 is the year it becomes materially harder to absorb through incremental action. By then, the system is no longer dealing with early payer-mix slippage alone. It is confronting a larger uninsured population, more uncompensated care, and tighter financing dynamics.
When margins compress, most organizations reach for proven tools: GPO savings, med-surg optimization, clinical supply, and targeted consulting. Those efforts still help, but they were built for a different kind of challenge.
They are less effective now for three reasons.
- This pressure is extending beyond clinical supply and labor into indirect, non-clinical categories that require different forms of expertise.
- Many of the conventional tools rely too heavily on single-unit-of-measure benchmarking, which breaks down because categories don’t compare evenly.
- Healthcare benchmarks itself too narrowly — often against healthcare systems — when other industries — particularly retail and other large multisite operators — have been more disciplined in managing indirect spend for far longer.
That is why 2026 is so important. It is not yet the worst year. Precisely for that reason, it is the year to act.
Once the curve steepens in 2027 and beyond, organizations that delay will be forced to respond from a weaker position — after contract windows have been missed, after savings timing has slipped, and after a meaningful share of mitigation has already been forfeited.
For many CFOs, the real mistake will not be underestimating 2029. It will be misreading 2026 as manageable.
The Limits of the Traditional Playbook
Faced with margin compression, most organizations instinctively return to proven levers: group purchasing organizations, clinical and med-surg supply optimization, internal cost teams, and targeted consulting engagements.
These approaches have delivered real value in prior cycles. But they are not designed for the problem now emerging.
Indirect spend spans hundreds of categories — IT, purchased services, facilities, corporate functions — each with its own market dynamics. Traditional approaches rarely bring deep, category-specific expertise across this breadth.
At the same time, the benchmarking model that underpins many cost efforts begins to break down. Unlike clinical supplies, indirect categories do not lend themselves to clean unit-based comparisons. Vendor scope varies, service levels differ, and contract structures are inconsistent. The result is often false precision — benchmarks that appear comparable but are not.
Compounding the issue, healthcare continues to look inward for comparison points. In indirect spend, that is a structural disadvantage. Other industries have invested far more heavily in category management, supplier transparency, and disciplined sourcing. Benchmarking against healthcare peers can normalize inefficiency rather than expose it.
A Different Source of Advantage
The Health Systems acting now understand that margin performance won’t be driven only by operational efficiency inside the clinic. It will also be shaped by how effectively they control the non-clinical cost structure around care.
Indirect spend — typically 20%+ of total net patient revenue — represents one of the largest remaining levers for meaningful, scalable impact.
But unlocking it requires a different approach: enterprise-level ownership rather than scattered responsibility; category expertise rather than generalized sourcing; and cross-industry benchmarking rather than healthcare-only comparisons.
As Ochsner Health’s CFO Jim Molloy put it, “Indirect spend is a rare aspect of our business where we can apply best practices from other industries with less complication caused by our unique clinical considerations. To not prioritize it at a time when every part of the business is under pressure would be a huge mistake.”
The Constraint No One Can Avoid: Time
Even with the right strategy, indirect spend doesn’t change overnight. Savings are governed by contract durations, renewal cycles, and vendor dependencies. In many cases, contracts cannot be exited early without significant penalties or operational disruption. Value is realized over time, as agreements renew and categories are addressed in sequence.
This makes indirect transformation inherently multi-year. And it introduces a dynamic that many organizations underestimate: timing determines value. When you start, matters just as much as what you do.
Consider a $2.5 billion integrated regional health system facing the policy-driven margin pressures now unfolding across the industry.
Over the next four years, cumulative margin compression could exceed $300 million, with annual pressure surpassing $100 million by 2029.
A disciplined approach to indirect spend — implemented immediately — can meaningfully change that trajectory. In this scenario, such a program offsets roughly 25% of margin pressure in year one and more than 40% by years three and four.
The timing of the effort, however, proves just as important as the strategy itself.
A six-month delay in launching the same initiative eliminates early gains and reduces cumulative impact — resulting in more than $20 million in permanently lost value, even if the organization eventually catches up.
The lesson is straightforward: in a contract-driven cost structure, timing is not a secondary consideration — it is a financial determinant.
What Early Movers Understand
The systems already acting are not waiting for these pressures to fully materialize in their financial statements.
They are aligning with the trajectory, not lagging indicators.
That shift requires a change in mindset as much as capability. As Doug Lischke, CFO at MUSC, put it: “If we’re serious about improving operations, we must treat indirect spend with the same rigor as supplies and labor. This requires deep examination, intentional prioritization, and leveraging partners who do this better than we can alone.”
They recognize that the coming margin pressure is structural, not temporary; that traditional levers will not be sufficient on their own; and that indirect spend represents a time-sensitive opportunity.
Just as importantly, they are drawing on capabilities and practices that extend beyond the traditional healthcare playbook.
A Strategic Choice
Health system leaders now face a choice.
They can continue to rely primarily on familiar tools — seeking incremental gains in areas that have already been optimized. Or they can expand their aperture, addressing parts of the cost structure that have historically been under-managed but are now central to financial performance.
Indirect spend is not a cure-all. But it is one of the few levers capable of delivering material, scalable impact within the time horizon that this policy environment demands.
And because that impact is time-dependent, the decision of when to begin is as consequential as the decision to act at all.
Looking Ahead
Health care is moving into a new economic phase.
The organizations that respond with incrementalism will find themselves absorbing the full weight of that shift.
Those that move early — adopting more disciplined, cross-industry approaches to managing indirect spend — will not avoid the pressure. But they will reshape how much of it they ultimately absorb.
In this environment, the decision to wait is not neutral.
It is a decision to accept a weaker financial outcome.
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