Hospitals across the United States are encountering significant headwinds as they operate within a tightening policy and reimbursement environment, compounded by broader economic challenges. A fresh analysis by Bank of America (BofA) Securities, circulated on Tuesday, articulates a cautious stance toward the hospital sector, citing moderating operational fundamentals alongside the influence of recent healthcare legislation and subsidy expirations.
BofA projects that hospital earnings before interest, taxes, depreciation, and amortization (EBITDA) are likely to experience an annual growth decrease of approximately 2% to 4% over the forthcoming five years. This forecast is primarily driven by provisions in the Reconciliation Bill which impose reimbursement cuts, as well as the impending termination of enhanced subsidies within health insurance exchanges. The forecasted EBITDA headwinds reflect declines not only in patient volumes but also from margin compression.
Within this landscape, while there are tentative developments favorable to some operators, such as the anticipated approval of a few new state-directed payment programs (SDPs), these are considered to contribute only minimal and lower-quality EBITDA uplift, given the overarching trajectory of future cuts.
The analysis further delineates the relative vulnerability of hospital operators. Among those expected to bear the brunt of financial pressures are Universal Health Services Inc. (NYSE:UHS) and Ardent Health Inc. (NYSE:ARDT). Conversely, HCA Healthcare Inc. (NYSE:HCA) emerges as comparatively better positioned to mitigate adverse effects due to its operational structure and strategic positioning.
Additional regulatory uncertainty looms as Medicare site neutrality reforms may reemerge in Congressional discussions as potential offsets, presenting further risks to hospital reimbursements.
Examining patient demand trends, healthcare utilization is stabilizing, implying that volume growth in hospitals for 2026 is forecasted to settle at or below the midpoint of historical long-term ranges. However, considering an expected 90 basis point annual volume headwind attributed to policy-driven changes affecting exchanges and Medicaid, the result is likely a reduction in volumes below long-term normative expectations.
Notably, consensus estimates that assume 2026 volumes will replicate 2025 figures carry downside risk in light of these developments. Additionally, the fourth quarter of 2025 is anticipated to feature a volume surge due to the acceleration of patient demand ahead of new coverage changes effective January 1, 2026. This temporal pull-forward effect is expected to complicate year-over-year volume comparisons for 2026.
In response to these headwinds, BofA expresses a strategic preference for post-acute care providers, which exhibit minimal exposure to the funding cuts targeting exchanges and Medicaid programs. Encompass Health Corporation (NYSE:EHC) is identified as the top pick within this segment due to its reliance on Medicare as the primary payer, which shields it from the majority of anticipated reimbursement reductions. Furthermore, Encompass Health benefits from volume streams that are largely non-elective, consequently displaying a lower correlation with acute care hospital volume fluctuations.
Within the broader hospital operator universe, Tenet Healthcare Corporation (NYSE:THC) stands out as the preferred hospital sector choice. The firm's significant involvement in ambulatory surgery centers (ASCs) provides insulation against the financial impacts contained in the Reconciliation Bill, making it better positioned compared to peers. Expectations for Tenet include differentiated growth trajectories in the coming years, buttressed by ongoing debt reduction initiatives and share repurchase programs that should contribute to shareholder returns.
In the specialized segment of senior living, Bank of America has upgraded Brookdale Senior Living Inc. (NYSE:BKD) from an Underperform to a Buy rating. This upgrade reflects Brookdale’s status as a targeted play on aging demographic trends, combined with improved free cash flow (FCF) generation and relatively limited exposure to government funding streams. The analyst’s price target for Brookdale has also been increased significantly from $6.75 to $13, signaling enhanced confidence in the company’s fundamentals and strategic positioning.
Overall, the fiscal environment for the hospital sector is tightening under combined pressure from regulatory changes and economic realities. Operators with diversified revenue streams and less dependency on vulnerable payer categories appear best suited to navigate this environment. Post-acute and ambulatory care providers are viewed favorably for their relative resilience amidst the evolving policy landscape.