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Happy Thursday, Hospitalogists! Welcome back to the annual Hospitalogy Soothsayer Special! As is customary practice at this point, Parth Desai and I have been brainstorming over the past several weeks about where healthcare is headed in the new year. Based on discussions with industry folks, market signals buried in earnings and disclosures, and our often misguided internal dialogues, here are some of our predictions for healthcare entering the year of our UnitedHealth Group overlords (well, maybe not so much anymore) 2026. Have questions or want to get in touch with Parth? E-mail parth@flarecapital.com. Have any of your own predictions or thoughts for the piece? Shoot 'em over to me at Blake@workweek.com. View our track record here: Finally, my community is commenting with their own predictions here. Reply to this email or join the community to add your own thoughts on the existing thread on where we're headed in 2026, and it'll be included in the send on Tuesday! |
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Going deeper on an interesting topic, theme, or trend |
8 Predictions for Healthcare 2026: What the Market is Signaling for the Year Ahead |
Payers Turn the Keys Over to AI |
The AI arms race has reached payers—and in 2026, laggards will pay the price. The challenges payers face heading into next year are manyfold: unprecedented cost pressure, a need to modernize benefit design and an AI arms race with providers. Competing in this environment will require them to modernize their technology stack, using AI to power a more dynamic claims, pricing and benefit design operation. Relative to the rest of the healthcare industry, payers have been a laggard in AI adoption. This is a historical phenomenon that continues to persist. There are many reasons for this, including cultural conservatism, tech debt, integration complexity and political risk. Nonetheless, its becoming clear that payers who don't evolve their AI strategy will be at a competitive disadvantage. With obvious pressures ahead, we think payers will be more open to partnering with emerging AI companies in 2026, particularly those who can help them capture margin in two key areas. First, in pricing and claims processing. Providers have rapidly scaled AI-driven documentation and coding tools, coinciding with sharp increases in denials, audits, and average claim values. Coding-related denials alone have grown more than 100% over the last two years, with denied Medicare Advantage claims now averaging roughly $1,000. In response, plans are increasingly focused on modernizing their payment integrity programs, shifting from retrospective "pay-and-chase" models to pre-pay clinical validation, anomaly detection, and automated adjudication designed to counter provider-side AI optimization in real time. Second, in dynamic benefit design. Competitive pressure—most notably from UnitedHealthcare's Surest product, which has reported double-digit total cost savings and materially lower member out-of-pocket spend— is pushing plans to modernize network and benefit designs rather than rely solely on utilization management to reduce cost. Importantly, the transparency and shoppability enabled by products like Surest are hallmarks of the ongoing regulatory push (TiC Final rule, Price Transparency EO) for price transparency, and furthered by recent regulatory actions. In 2026, we think health plans feverishly invest in modernizing their technology stacks, rethinking how AI can help them sophisticate claims and utilization management, pricing, and benefit/network design. The impact on provider billing will be interesting to track! |
After the Boom Cycle in 2025, Health IT Spending Recalibrates |
2025 was a banner year for health tech funding. Lower interest rates thawed capital markets, AI excitement hit fever pitch, and valuations expanded accordingly. Every health system board wanted an AI strategy. Every CIO had pilots running across revenue cycle, clinical documentation, and patient engagement. In 2026, the hangover arrives. Not a crash. A recalibration. Per Black Book's recent HCIT survey, 60% of CIOs report active pause directives on platform upgrades, extended payment terms on new contracts, and a hard pivot toward projects demonstrating ROI within 12 months. The era of speculative AI experimentation is giving way to a "show me the savings" posture. Several forces are converging here. Policy uncertainty around OBBBA and potential government shutdown creates budget conservatism. The initial wave of AI pilots has generated enough data for executives to distinguish between genuine productivity gains and expensive science projects. And perhaps most importantly, Epic's emergent AI roadmap is forcing a strategic reset. Health systems that rushed to partner with the first wave of ambient documentation vendors or workflow automation startups are now asking uncomfortable questions about platform redundancy and switching costs. The implications cut two ways. Vendors with sticky enterprise relationships and demonstrable ROI will consolidate share as they expand into further use cases and become AI partners of choice. But the players still pitching "potential" without production deployments face a brutal fundraising environment and lengthening sales cycles. We'll likely see M&A activity pick up as well-capitalized platforms absorb point solutions that can't survive the squeeze. For health systems, 2026 becomes a year of portfolio rationalization. Fewer vendors, deeper integrations, and a willingness to wait for Epic where the roadmap is credible. |
The AI Orchestration Layer is Here as Use-Cases Converge |
Here's the dynamic playing out across health systems and payers: AI is becoming fungible.
The initial wave of healthcare AI focused on discrete point solutions. Ambient documentation. Prior auth automation. Coding optimization. Predictive readmission models. Each use case spawned dedicated vendors, dedicated budgets, and dedicated implementation teams.
In 2026, enterprise buyers start demanding consolidation. The operational model shifts from "best of breed for each use case" to "who can orchestrate AI across our entire administrative and clinical workflow?" Systems of intelligence sitting atop systems of record.
For organizations with capital and technical talent, the preference will be internal development and experimentation. Health systems like Mass General Brigham and payers like Elevance are already building proprietary AI capabilities. For everyone else (which is most of the market), the question becomes: which external partner gets the enterprise AI mandate?
This is where the Palantir playbook becomes relevant. The firm is already working with HCA and others to deploy AI infrastructure that spans clinical, operational, and financial domains. The value proposition isn't any single algorithm. It's the orchestration layer that ties disparate data sources into unified decision support. Google Cloud's healthcare vertical push, Microsoft's Nuance integration strategy, and Oracle Health's Cerner rebuild are all variants of the same thesis.
We think 2026 brings meaningful vendor consolidation as buyers favor partners demonstrating cultural alignment, platform breadth, healthcare-specific depth, and sophisticated data infrastructure. Point solution vendors will scramble to expand use cases and increase switching costs before enterprise decisions lock them out.
The ambient documentation space is particularly exposed. With Epic building native capabilities and orchestration platforms absorbing adjacent workflows, standalone ambient players face a strategic grind. |
A quarter of all States will enact or consider price control caps in 2026 |
Most cost control policies have had, at best, modest success in constraining healthcare spending. Mandated price caps, however, are much more likely to be an effective cost containment tool, according to the Congressional Budget Office. And states, some of whom spend almost 40% of their budgets on Medicaid and are growing impatient, are increasingly turning to caps as a blunt force tool to control costs. In 2025, 13 new states considered joining a handful of their peers, by instituting caps to contain healthcare spending. We think this is just the beginning. In 2026, we think the U.S. will enter the price-cap decade. Hospital pricing power in a growing bloc of states will start to look less like a market and more like a regulated utility. We don't think its unreasonable for a quarter of all states to adopt or consider hard or quasi-hard caps on hospital prices or price growth, with public-employee plans and site-neutral caps becoming the beachhead for broader commercial market regulation. Transparency and cost-growth benchmarks will increasingly be seen as failed half-measures, kept mainly as political cover for regulators to flip the switch on binding caps when systems miss their targets. |
Health Systems Get Serious on Consumerism and Explore Direct Contracting Models |
Healthcare in 2026 will increasingly operate on parallel rails, and the divergence is intentional. On one track, the traditional fee-for-service track is getting harder to run. Denial rates have spiked, administrative costs consume an ever increasing waste pool of total healthcare spending, and the labor required to chase reimbursement keeps climbing even as margins compress. On the other track, a growing cohort of health systems are quietly building direct relationships that bypass the payer intermediary entirely. For instance: - Baylor Scott & White launched Levanto Health, a direct-to-employer primary care and benefits administration platform designed to capture employer relationships without ceding economics to a third-party payer.
- Henry Ford partnered with Nomi Health to offer self-insured employers a direct contracting model that cuts administrative overhead and improves price predictability.
- And perhaps most notably, Northwell Health inked a deal with the 32BJ Health Fund covering 100,000 union workers in New York City, with projected 20% cost savings in year one driven largely by eliminating the administrative layer between employer and provider.
Health systems with sufficient scale are uniquely positioned to package a complete care product and sell it directly to large employers frustrated by annual premium hikes and opaque carrier economics. And startups like Judi Health are emerging to facilitate this exact model, rethinking employer benefits administration and making it operationally feasible for mid-market employers to bypass traditional carriers. As these enablement layers mature, we think the direct contracting playbook extends beyond jumbo employers with dedicated benefits teams. Consumerism only serves to accelerate things. Patients with means are increasingly willing to pay cash for access, speed, and experience. Concierge medicine, direct primary care memberships, and self-pay surgical bundles are all growing categories. Health systems that once viewed these as niche offerings are starting to recognize them as margin-accretive business lines that don't require payer contracting headaches. In 2026, we think the most operationally sophisticated health systems will formalize dual-track strategies: maintaining payer relationships for broad population coverage while aggressively building direct-to-employer and direct-to-consumer channels that capture better economics and reduce administrative friction. |
2026: The Year of the Cell & Gene Therapy Operating System |
One of next year's hottest healthcare IT categories will be "cell and gene therapy (CGT) operating systems" – platforms that orchestrate referrals, prior authorizations, contracting, and longitudinal outcomes tracking across the fragmented network of qualified treatment centers and community practices. These operating systems will be best positioned to capture the value-oriented reimbursement infrastructure most appropriate for these high-cost therapies. Today, our current infrastructure cannot support the coming wave of new CGTs. Treatment site growth is essentially flat year-over-year and expansion into community settings remains "disappointingly slow," despite more approved and pipeline CGTs. Payers explicitly rank inconsistent data access, long-term patient tracking and outdated billing systems among the top barriers to both reimbursement and adoption of innovative payment models, even as 60% say value-based contracts could help manage CGT risk if endpoints and data flows were simpler. Providers simultaneously report growing workforce and operational strain coordinating apheresis, manufacturing, bed management, and follow-up care. This obviously limits payer visibility into where CGTs are delivered and how patients fare over time. Founders who build CGT-specific data and workflow rails that link qualified treatment centers, community practices, specialty pharmacies, and payers into outcomes-based contracts will sit on a system-critical chokepoint as CGT spend heads toward tens of billions of dollars by 2030. |
The Stratification of Primary Care Accelerates |
Primary care is fragmenting. And the fragmentation is happening along economic fault lines that we insiders are not talking about loudly enough. The unified model of primary care, where a single PCP manages a heterogeneous panel of commercially insured, Medicare, and Medicaid patients with roughly the same service model, is dying. That subsidized model is being replaced with a stratified landscape where care delivery, access, and amenities diverge sharply based on ability to pay. We're cheating a bit on this one, because this trend is not a prediction. It is already happening. But we do think these forces accelerate further given recent pushes like MAHA ELEVATE, wearables API integrations, plummeting costs of longevity subscriptions (quality TBD) and preventive scanning, along with policy forces like dependent care accounts (a type of FSA) contribution maximum drastically increasing (from $5,000 to $7,500!), talk of continued HSA expansion, and finally…relatively higher paying individuals likely to roll off ACA plans in 2026 with spiking premiums. As a result, primary care will stratify along classist and demographic lines. MA beneficiaries to NP-heavy senior clinics. Traditional Medicare and higher spenders to concierge and direct primary care. Worried well and biohackers subscribing to longevity platforms and med spas, pursuing peptides and hormone replacement. The commercially insured middle class get their annual physical and 15-minute check-ups, with urgent care and telehealth to fill in for flu season. And finally…Medicaid patients to overburdened clinics with razor thin margins. |
Quality reporting leaps to the top of the innovation stack |
The growth in prices for medical care is expected to significantly outpace the growth in price for all goods and services in 2026. Entering 2025, patients already had record low confidence in their ability to afford healthcare services and household perception about their current and future financial situation has only deteriorated over the course of this year. The setup is concerning. Affordability needs to improve faster than the status quo and the reality is that common price controls and value-based interventions have barely made a dent in containing healthcare spending over the last decade, and are unlikely to do so at the rate we need them to. To justify evolving billing practices and overall costs, they need to correlate to value. But as a system, we still struggle mightily to tie longitudinal care data to the cost of the care we've delivered. This is both a quality data collection and analysis problem. In 2026, however, government and commercial payers will have a much higher threshold of accountability in managing unregulated cost growth. The number of hospitals penalized by CMS for high hospital readmissions has been relatively unchanged over the last decade and quality reporting compliance, generally, has decreased. And that's not acceptable, especially given the state of modern technology. We expect that the sophistication of quality reporting practices will need to match, if not exceed, billing practices next year. And we expect hospitals (driven by new payer audit policies and incentive structures) to focus on streamlining and sophisticating currently costly and disjointed quality reporting activities as quality evolves from a cost center to revenue generating function. LLMs will have an important role to play here, particularly in drawing tighter correlations between clinical outcomes reported in registries to coded and billed claims. |
Bonus Prediction: Accelerated high-cost drug approvals as FDA loosens criteria |
In 2026, regulatory submissions for treatments in rare diseases and oncology are likely to accelerate and expand their indications by leveraging large de-identified real-world datasets — such as national cancer registries, electronic health records, and insurance claims — to demonstrate effectiveness and safety outside of traditional randomized controlled trials. This policy change will make it easier for biotech and pharmaceutical companies to support applications for new drugs and biologics in populations that are hard to recruit for conventional trials, such as pediatric or comorbid patients. As a result, we may see earlier approvals and broader label expansions for targeted cancer therapies and gene therapies, particularly where real-world outcomes provide insights into long-term benefit and diverse patient responses that clinical trials alone have struggled to capture. |
Forecasting healthcare trends is inherently challenging, as significant changes often unfold across several years or even decades rather than a single calendar year. Nevertheless, it's always fun to anticipate what major stakeholders will focus on in the coming year, especially with the unique blend of uncertainty and enthusiasm that often accompanies a new administration. For those who get it right, you get a major edge on the year. You're welcome. If we had to synthesize these predictions into a single theme, it's this: 2026 is the year healthcare's major stakeholders stop experimenting and start choosing. Payers choose their AI partners. Health systems choose their orchestration platforms. States choose whether to regulate prices. Primary care chooses whether to acknowledge its stratification. The era of optionality and pilot programs is giving way to strategic commitment. We're eager to hear your perspective on our 2025 predictions. Hit reply and share your thoughts as we prepare to start the new year strong! Bonus way-too-specific predictions - Trump announces TrumpCare in 2026
- Infusion emerges as one of the hottest verticals for M&A
- Interest rate drop thaws out M&A
- Nutex Health and other No Surprises Act abusers come under major pressure for billing practices
- agilon and/or P3 gets taken private
- We get some kind of marquee health tech platform to go public
- We finally get some updates on all the health tech companies that raised absurd rounds in the 2021 free money era
Blake's top stock picks for 2026 (not investment advice, based on pure vibes only): - Humana: MA turnaround thesis plays out as Stars stabilize and V28 headwinds get priced in
- Hims & Hers: DTC healthcare keeps eating traditional primary care's lunch
- Waystar: RCM consolidation beneficiary as health systems rationalize vendor relationships
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Thanks for the read! Let me know what you thought by replying back to this email. — Blake |
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