Special report Healthcare leadership · October 2026
Before the hospital runs out of options.
The hospital finance divide, and the leadership decisions that protect access to care while meaningful choices remain.
By Kelly EmrickDHSc, PhD, MBA, BSRT(ARRT)R
- ~8 days of cash at one hospital
- 1.8% August median margin
- ~43% of hospitals at a loss
- 537 hospitals lost obstetrics
01 · The hospital finance divide
A hospital can stay open while the care inside it changes.
Financial recovery across the hospital sector can coexist with serious distress inside individual institutions. Leaders should measure the capacity to deliver care alongside margin and liquidity.
Healthcare leaders should resist reading the divide as a simple ranking of managerial competence. Different communities, payment arrangements, service obligations, and access to capital create different starting positions.
Distinguish
temporary relief from recurring improvement.
Test
the clinical consequences of proposed savings.
Assign
explicit responsibility for essential services.
Evidence reviewed through October 20, 2026. Original analysis prompted by Madeline Scheetz, Becker’s Hospital Review, “The hospital finance divide: 15 things to know.” Based on published records and research; no original interviews or independent audit of any hospital’s accounts.
02 · A public hospital warning
Eight days of cash. Months for a solution.
On October 15, the Pajaro Valley Health Care District made an unusually direct disclosure about Watsonville Community Hospital. Leaders were considering service reductions and warned the hospital could close without action.
About
8
days of cash on hand
Possible closure in
6 to 12
months without action
Strategic relief
Months
before growth and partnership benefits arrive
The timing mismatch, drawn to scale (one year)
A strategic solution can be credible and still arrive too late.
A partnership can be promising while the organization struggles to finance the period before it begins. The question is whether leaders have enough time, usable cash, and clinical stability to carry the plan through.
Source: Pajaro Valley Health Care District (2026, October 15). Community town hall planned to discuss financial crisis affecting future of Watsonville Community Hospital.
03 · The national context
The median margin fell by two thirds in two months.
Figure 2. Monthly median operating margin, including allocations
2.5%
Calendar-year-to-date median operating margin
~43%
of hospitals operate at a loss, compared with about 33% before the pandemic.
Solid squares: the prepandemic share. Striped squares: the increase.
A positive midpoint cannot answer the most important local question: can this organization keep providing the care its community depends on?
Source: Kaufman Hall (2026, October 13). National Hospital Flash Report: August 2026 metrics, p. 7. Vizient. A recurring hospital sample, not an audited census.
04 · Read the result before you copy it
A margin is a measure, not a diagnosis.
Duke University Health System operating margin
FY 2025
2.5%
FY 2026
5.4%
Reported drivers: higher Medicaid state-directed payments and a full year of an acquired hospital. Leaders need to understand what produced improvement before treating it as a model they can reproduce.
I would ask management to explain improvement in three parts, understandable to a clinically experienced trustee without removing the detail the finance committee needs:
- 1What changed in the underlying business?
- 2What changed in the accounting or organizational structure?
- 3What will continue next year?
Investment gains may strengthen the balance sheet without showing that clinical operations cover recurring costs. A change in ownership can alter the reporting perimeter. A delayed expense can improve this month while preserving the obligation for later.
Honest comparison protects vulnerable hospitals too
A facility carrying essential services for a poorly reimbursed population should not be judged against an institution with a fundamentally different business mix without explaining those differences.
Table 1. Questions that make a financial comparison useful
| Measure | What the board should establish |
|---|---|
| Operating margin | Reporting entity, period, revenue denominator, allocation policy, and recurring versus unusual items. |
| Net income | How much comes from operations, investments, asset sales, or other nonoperating activity. |
| Days cash on hand | Which assets are available, which are restricted, how daily expenses are defined, and what obligations are approaching. |
| Service profitability | Avoidable costs, allocated overhead, associated services, and the funding required to sustain community access. |
| Improvement versus budget | Whether the budget remains credible and whether the result also improves on comparable actual performance. |
Source: Cass, A. (2026, October 9), Becker’s Hospital Review. Table 1 is the author’s recommended review questions; reconcile definitions to the organization’s accounting policies, financing documents, and actual reporting scope. Kaufman Hall reports medians and made a 2026 update to its corporate allocation and intercompany transfer adjustment, another reason to read methodology before a long-term comparison.
05 · Liquidity
Cash buys time. Leadership determines its use.
Watsonville’s leaders say one-time funding and loans cannot resolve the recurring gap. Days cash on hand is not a literal countdown to the last day of service; it becomes useful when connected to a dated forecast of what cash is actually available and when it will be needed.
Recommended: a rolling 13-week cash forecast
Refreshed weekly and reconciled to actual receipts and payments. The grid shows the structure only, not hospital data.
Confirmed resourcesScenario only, until availability and timing are established
Keep in a scenario until confirmed
- A potential grant
- An unsigned partnership
- An expected asset sale
Questions the forecast must answer
- Which obligation becomes difficult first?
- Which corrective action can take effect before that date, and who owns it?
- What happens if collections fall short or a proposed transaction slips?
A board should know its response before the downside case becomes the only case left.
Temporary support can be valuable when it funds a defined transition. Its purpose, conditions, and expected end point should be visible. Otherwise, the board may repeatedly approve the same emergency without deciding what must change to avoid the next one.
Sources: Pajaro Valley Health Care District (2026); author’s recommendation.
06 · Figure 3 · Original framework
Link financial endurance to clinical capability.
Choose where your organization sits today. The matrix pairs liquidity with clinical capability, so neither can reassure the board on its own.
Set escalation criteria while there is still room to act, for example
- A projected inability to meet a critical obligation
- A material loss of financing flexibility
- An inability to staff an essential service safely
Thresholds must reflect local circumstances and contractual commitments. A universal number would create an appearance of certainty that the evidence does not justify.
Original conceptual synthesis by Kelly Emrick. A governance discussion tool, not a validated risk score. Each organization must define and approve its own escalation criteria.
07 · Access
A community can lose care before it loses a hospital.
U.S. hospitals, obstetric services, 2010 to 2022
537
Lost services
138
Gained services
Nearly four losses for every gain. A closure count is an incomplete measure of access. Leaders need to know which services remain available, at what hours, with what staffing, and with what delay.
Figure 4. Hospitals losing or gaining obstetric services, 2010 to 2022
LostGained
Before a service is reduced: an interactive check
A referral destination on paper is not access
Recommended: a clinical access statement
Beside every material service-reduction proposal, specify the expected effects, the evidence supporting the alternative, and the measures the board will review after implementation.
Source: Kozhimannil, K. B., et al. (2025). Obstetric care access at rural and urban hospitals in the United States. JAMA, 333(2), 166 to 169. Checklist and access statement are the author’s synthesis.
08 · Cost decisions
Savings need a clinical test.
+6%
Nonlabor expense per adjusted discharge, year to date versus 2025
Labor reductions are visible and can be implemented quickly. That does not make them the right response to every financial problem. Identify the source of the deterioration before choosing a remedy.
Nurse staffing legislation, Queensland, Australia
27 hospitals subject to staffing ratios compared with 28 comparison hospitals. Improved staffing was associated with better outcomes.
Table 2. Pair each proposed saving with a measure of its consequences
Staffing redesign
Financial evidence
Net recurring savings after coverage, turnover, and implementation costs.
Clinical or operational safeguard
Acuity, skill mix, missed care, adverse events, and usable staffed capacity.
Supply or drug purchasing
Financial evidence
Actual unit cost and utilization changes, including substitutions.
Clinical or operational safeguard
Clinician-approved equivalence, availability, and treatment continuity.
Revenue cycle improvement
Financial evidence
Net collections, aging, denials, and cost to collect.
Clinical or operational safeguard
Timely care, appropriate financial assistance, and patient complaints.
Capital deferral
Financial evidence
Cash conserved, future replacement cost, and exposure to service disruption.
Clinical or operational safeguard
Equipment reliability, maintenance requirements, and clinical contingency plans.
Sign off jointly
Finance and clinical leaders should jointly sign off on the assumptions, and agree in advance on the conditions that would trigger revision or reversal.
Leadership culture becomes visible
Can a nurse manager challenge an unrealistic productivity assumption? Can finance question an expensive practice without being accused of disregarding patients? The organization needs both conversations.
A claimed saving remains a hypothesis until the organization verifies the financial result and checks for consequences omitted from the proposal.
Sources: Kaufman Hall (2026); McHugh, M. D., et al. (2021), The Lancet, 397(10288). Table 2 is the author’s proposed review framework: examples for local adaptation, not evidence that a particular institution has implemented unsafe reductions.
09 · Partnerships
A transaction is the beginning of an obligation.
Affiliation or acquisition may provide capital, expertise, and a sustainable operating structure. An announcement does not establish that essential services will remain available or that integration will improve care.
Hospital mergers and acquisitions, transactions from 2009 to 2013
246
Acquired hospitals
1,986
Control hospitals
Modestly worse
Patient experience
No significant change
30-day mortality
No significant change
30-day readmissions
Differential change versus controls. The study cannot determine the merits of a particular 2026 partnership, but it challenges the assumption that a change of ownership automatically improves quality.
Before the board accepts a transaction: commitments in writing
The community should receive a clear account of the commitments that affect its care.
Source: Beaulieu, N. D., et al. (2020). Changes in quality of care after hospital mergers and acquisitions. New England Journal of Medicine, 382(1), 51 to 59.
10 · Table 3 · Action plan
The first thirty days of board action.
- 1
Days 1 to 7
Reconcile liquidity and recurring performance; agree on downside scenarios and escalation triggers.
Accountable: CEO and CFO, with finance committee review.
- 2
Days 8 to 14
Identify essential services, capacity constraints, and clinical consequences of proposed reductions.
Accountable: Clinical, nursing, and operations leaders with finance.
- 3
Days 15 to 21
Test alternatives, including operational changes, funded support, and partnership terms.
Accountable: Executive team with appropriate advisers and community input.
- 4
Days 22 to 30
Approve a funded plan with named owners, milestones, and combined financial and clinical reporting.
Accountable: Full board and CEO.
Author’s suggested sequence, not a regulatory timetable. An immediate liquidity or patient safety threat requires action sooner.
11 · The standard
Act while meaningful choices remain.
No longer a reassuring answer on its own
- A favorable national benchmark
- A better budget variance
- A prospective partner
- A plan whose savings have not been tested against the clinical work required to achieve them
How long
the organization can sustain its obligations
Which capabilities
are weakening
What each decision
will mean for patients
Share that knowledge early enough for staff, trustees, and community partners to contribute to a credible response. The most consequential decisions may arrive before a hospital is visibly in crisis.
The standard by which the plan deserves to be judged
A successful recovery should leave the institution able to provide reliable care, with a financial model that can support it.
References
- Beaulieu, N. D., Dafny, L. S., Landon, B. E., Dalton, J. B., Kuye, I., & McWilliams, J. M. (2020). Changes in quality of care after hospital mergers and acquisitions. New England Journal of Medicine, 382(1), 51 to 59. doi.org/10.1056/NEJMsa1901383
- Cass, A. (2026, October 9). Duke Health raises operating margin from 2.5% to 5.4% in FY 2026: 5 notes. Becker’s Hospital Review. beckershospitalreview.com
- Kaufman, Hall & Associates. (2026, October 13). National hospital flash report: August 2026 metrics. Vizient. vizient.com
- Kozhimannil, K. B., Interrante, J. D., Carroll, C., Sheffield, E. C., Fritz, A. H., McGregor, A. J., & Handley, S. C. (2025). Obstetric care access at rural and urban hospitals in the United States. JAMA, 333(2), 166 to 169. doi.org/10.1001/jama.2024.23010
- McHugh, M. D., Aiken, L. H., Sloane, D. M., Windsor, C., Douglas, C., & Yates, P. (2021). Effects of nurse-to-patient ratio legislation on nurse staffing and patient mortality, readmissions, and length of stay: A prospective study in a panel of hospitals. The Lancet, 397(10288), 1905 to 1913. doi.org/10.1016/S0140-6736(21)00768-6
- Pajaro Valley Health Care District. (2026, October 15). Community town hall planned to discuss financial crisis affecting future of Watsonville Community Hospital. pvhcd.org
- Scheetz, M. (2026, October). The hospital finance divide: 15 things to know. Becker’s Hospital Review. beckershospitalreview.com
Methods and limits. An original educational analysis of published records. The national finance report is a recurring hospital sample, not an audited census. Watsonville’s financial position and warning are attributed to its district; Duke’s results are attributed through Becker’s account of its financial filing. The peer-reviewed studies address different populations and periods, and their findings are not combined into a causal model of hospital failure. Recommendations, the conceptual matrix, and the action tables are the author’s synthesis. Images are AI-generated illustrations with fictional people and settings; they do not depict Watsonville or any other identified institution.