*Co-Author: Rex Burgdorfer, Partner, Juniper Advisory
Nonprofit health systems are operating in one of the most financially challenging environments in recent memory. The phase-out of Medicare supplemental payments, combined with broader federal reimbursement pressures, is compressing margins at a structural level. Below are five strategies that health systems are deploying in response.
1. Accelerating System Formation and Strategic Partnerships
Independent and regional hospitals are recognizing that standalone operations are increasingly unstable under compressed margins. Executives are aggressively pursuing mergers, acquisitions, and joint ventures to build scale, pool resources, and spread fixed operational costs across a broader footprint.
2. Clinical and Financial Realignment of the Payor Mix
Hospitals are performing deep-dive portfolio reviews of their service lines to evaluate (and in many cases, restructure) the traditional “cross-subsidization” model. In an environment where systems can no longer depend on traditional supplemental margins, many systems are structurally shifting capacity toward higher-margin commercial services to offset losses from government-reimbursed programs.
3. Transitioning to Value-Based Payment Models
Forward-thinking health systems are entering into advanced value-based payment arrangements, including capitated models in which a system receives a fixed per-member, per-month payment to manage a defined population's care and prospective payment models that reward quality outcomes and care efficiency over volume. Transitioning into these programs allows organizations to generate more predictable monthly cash flows and capture shared savings by maintaining tight care coordination.
4. Deploying Team-Based Care and Optimized Shared-Billing Workflows
To mitigate labor shortages and reduce delivery costs, health systems are re-engineering their clinical infrastructure around a “top-of-license” model, — meaning that each clinician practices at the full extent of their education and licensure, with routine administrative and lower-acuity tasks delegated to coordinators and medical assistants. This preserves physician time for complex clinical decision-making where it adds the most value. Health systems facing labor cost pressure are also investing in AI-assisted administrative automation to reduce reliance on contract labor, streamline prior authorization workflows, and improve scheduling efficiency, freeing clinical staff to focus on direct patient care.
5. Transitioning Care Delivery to Low-Cost "Site of Care" Settings
Health systems are proactively steering appropriate patients out of high-cost inpatient and hospital outpatient environments and toward ambulatory surgery centers (ASCs) and dedicated physician offices. Because ASCs and office settings carry significantly lower facility overhead than traditional hospital settings, health systems can often maintain competitive margins while improving the patient experience through more convenient, lower-acuity settings.
On October 20, 2026, Sheppard and Juniper Advisory will be hosting a breakfast roundtable in Miami Beach, FL, to discuss the practical impacts of each of these options. With insights from leaders from the Florida Hospital Association and Safety Net Hospital Alliance of Florida, we expect a lively c-suite conversation about health system financial resilience. Learn more at https://www.sheppard.com/news-and-events/events/from-pressure-to-performance-a-c-suite-conversation-on-health-system-financial-resilience.
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