Hospital-insurer contract disputes could intensify as cost pressures persist

Relationships between hospitals and health insurers are expected to undergo further strain this year, according to analysts with a leading credit ratings agency.

“Providers are still dealing with rising operating costs, labor supplies and infrastructure that outpace what insurers have been willing to pay in recent years,” said Bradley Ellis, senior director for the U.S. Health Insurance Sector with Fitch Ratings.

“That imbalance has created a real push from hospitals and physician groups for meaningful rate increases, and we’re seeing the effects of that across the country in escalating contract disputes and even network exits,” Ellis said during a January webinar.

Not-for-profit (NFP) hospitals likewise do not anticipate a harmonious turn.

“The word we’ve been using for years now is contentious,” said Kevin Holloran, senior director for the NFP healthcare sector with Fitch. “I expect it to be the same.”

A subtle shift in priorities can be seen in contracting, Holloran said. Negotiations are slightly turning away from money and toward other aspects, such as ways to ways to reduce denials and ensure a faster turnaround on claims processing.

Those discussions can be more constructive than haggling over dollars.

“Little things like that [where] you’re not arguing about money, [but] just sort of adherence to the contract, seems to be advancing the conversation just a little bit,” Holloran said.

What Fitch’s sector outlook means for not-for-profit hospitals

The 2026 sector outlook for NFP hospitals is neutral, Holloran said, even though recent developments seem to bode ill. Chief among those are the cutbacks included in the legislation known as the One Big Beautiful Bill Act (OBBBA) and sustained medical cost inflation.

Nonetheless, “at least for now, the data doesn’t support going anywhere other than saying neutral,” Holloran said.

Much of the financial impact of the OBBBA won’t be felt until 2028 or later, Holloran noted. That gives hospitals ample time to prepare.

And based on 2025 data that the company has obtained thus far from its rated hospitals, median operating margin rose from 1.1% to more than 1.5% year over year. There’s reason to believe the upward trend will continue.

That’s because CFOs are likely thinking, “I’m going to move as fast as I can to make sure I can bulletproof myself and get ready for what’s coming,” Holloran said.

“And by doing that, you’ll probably see bumps in [financial] medians,” he added. “That’s certainly our expectations of those margins. Balance sheets are at all-time highs as well.”

Fitch’s Corporate Healthcare and Pharmaceuticals team similarly has a neutral outlook pertaining to for-profit hospitals. While expenditure growth over the next few years is expected to be in the low to middle single digits, revenue growth projects to be at least slightly higher, due to modest volume growth and increases in payment rates.

Labor costs likely will not improve from their current levels but should remain stable, said Britton Costa, managing director with Fitch.

A closer look at the labor picture

It remains to be seen how ongoing hiring trends affect those costs.

Healthcare added 21,000 jobs in December, including 16,000 at hospitals, as facilities continued to respond to high demand for services, especially among baby boomers. The numbers represented sizable shares of the 50,000 total jobs added in the U.S. for the month.

The hospital hiring numbers for December were in line with the monthly average for 2025 and down slightly from monthly gains of 17,600 for 2024. Overall healthcare industry job gains dropped off in December when compared with the 2025 average of 34,000.

The latest data suggests hospital labor costs remain relatively stable, increasing by 3.6% year over year in November, according to data from Strata Decision Technology. That number especially seems tame compared with the immediate aftermath of the COVID-19 pandemic and compared with drug costs, which increased by 9.3% year over year.

“Labor expenses have been pretty reasonable,” Steve Wasson, chief data and intelligence officer with Strata, said in an interview. “They’re not like some of the other years and they’re not as volatile as drugs and supplies. So while still at relatively elevated rates, we’re not seeing another brunt of a financial problem with it. It seems to be settled right now. That doesn’t mean it will stay that way.”

Moreso than cost concerns, issues that may become financial drags for NFP hospitals in 2026 include the possibility that unemployment will rise by perhaps a percentage point, leading to an increase in the number of people without insurance, Wasson said. In tandem with the uncertainty around the Affordable Care Act (ACA) enhanced subsidies, any such trend “could start showing up in our reimbursement numbers.”

Why the health insurance sector outlook is deteriorating

Unlike the stability predicted for NFP hospitals, the health insurance sector has an outlook of deteriorating, according to Fitch.

Insurers are “looking at persistent medical cost pressures, policy uncertainty and structural shifts in utilization that shows few signs of easing,” Ellis said.

Medical cost trends are facing upward pressure across all lines of business, driven by both more provider visits per member and higher costs per visit.

Demand for behavioral healthcare continues to surge, Ellis said, stemming from improved access through virtual care, as well as greater awareness of behavioral health challenges and reduced stigma around seeking care.

Another key factor is pharmacy costs, spurred by “explosive growth” in GLP-1 drugs, cell and gene therapies, and advanced oncology treatments, Ellis said. Some of those products are driving the surging expenditures for hospitals as well.

“These are clinically transformative, but they come with significant, sometimes unpredictable, cost structures,” Ellis said.

Insurers also have been challenged by improvements in providers’ revenue capture capabilities, “including more advanced coding and billing practices, greater sophistication in identifying and documenting complexity, stronger negotiating leverage due to health system consolidation,” Ellis said.

An indication that such trends will continue can be seen in insurers’ requests for double-digit premium increases in the ACA and small-group markets, although the ACA increase also can be attributed to questions around the enhanced subsidies.

“These premium filings are often our best window into payer expectations, and they’re clearly signaling that this year will come with higher claims costs and therefore higher payment rates,” Ellis said.