McKinsey perspectives on healthcare industry trends and the year ahead

The US healthcare industry is facing continuing turbulence. The challenges of recent years still confront the industry and, in some cases, have worsened: increasing costs, exacerbated by tariffs; addressing the needs of an aging population; reimbursement pressures, particularly in government lines of business; and workforce shortages, improving but still a big concern. On top of these of trends are sweeping federal policy changes enacted in 2025, including the One Big Beautiful Bill Act (OBBBA, or H.R.1), that will likely have a major impact on the payer, provider, and pharmacy landscapes.

If there is reason for optimism, it would be how technological innovation is offering the healthcare industry a transformative opportunity to address affordability, access, and quality issues. For example, adoption of AI is growing faster than any other technology in healthcare in many years. The technology, including agentic AI and ambient listening, is being applied in areas such as prior authorization, claims management, revenue cycle management, contact center management, and medical charts and visit notes. Experiments and pilots of one kind or another are evident throughout the industry. A major beneficiary of this trend is the health services and technology (HST) segment of the industry, with companies achieving strong margins and fast revenue growth.

Healthcare executives are faced with running their organizations at two speeds. In the short term, the key is resilience—taking definitive action to drive performance—given the forces buffeting the industry. Longer term, the most successful players must focus on reimagining and reinventing domains and especially how to apply technology to improve access, affordability, and outcomes.

What do we see for healthcare industry segments in 2026?

• For payers, we anticipate a year of retrenchment and resetting their risk mix, given changes coming in the Affordable Care Act, Medicaid, and Medicare.
• For providers, we expect major metropolitan hospital systems to lean into technology-based transformation; for rural systems, it will be resilience and consideration of new business models in the face of government funding changes.
• For health services and technology, the legacy players will be reimagining their offerings given advances in areas such as AI; AI-native entrants will begin to scale, potentially becoming acquisition targets.
• In pharmacy, we expect the rapid pace of change observed in 2025 to further accelerate, spurred by state and federal legislative and regulatory activity, as well as industry-driven unwinding of complex economic models.
• Private capital appears to have turned a corner, with the expectation that more deals will be forthcoming.

Below, McKinsey partners discuss the outlook, challenges, and opportunities for the provider, payer, health services and technology, private capital, and pharmacy services subsectors as well as how innovation and technology are reshaping the industry. This compendium comprises a selection of articles we published in 2025 and dives deeper into many of those challenges and opportunities. Themes include how AI is reshaping consumer experiences as well as health services and technology, what makes for a strong nursing workforce, ways to reduce administrative spending, and closing the women’s health gap.

Payers: How to respond to regulatory changes and increasing costs

What’s the outlook for the payer sector in 2026?

Adi Kumar: The sector is grappling with three major forces that are colliding at the same time. The first is that the United States leads the rest of the world in total and per capita health spending, and the trajectory of rising healthcare costs is unsustainable. That is resulting in an active regulatory set of actions that the sector must deal with.

The second is that changes in our population, as well as our national sentiment, are having a profound impact on the industry. In five years, about 20 percent of the US population will be over the age of 65. Already, one in ten Americans suffer from multiple chronic conditions and this number will likely rise. Many people will require costly, high-intensity care models.

Regarding national sentiment, distrust of institutions remains at all-time highs, in part fueled by inequality in America that has increased for decades and remains stubbornly high. This, as well as the plain realities of how Americans experience the healthcare system, is exposing a large trust deficit for the sector.

The third force is the technological revolution that we are watching unfold. Just as the industrial revolution mechanized muscles and the internet revolution digitized information, the AI revolution is augmenting cognition itself. It sits in a line of world-changing advances—from electricity to computing—but may unfold faster and touch more parts of daily life than any that came before. The outlook for the sector will largely depend on how it responds to these realities.

How will the regulatory changes affect payers in 2026?

Adi Kumar: Much of what the sector is navigating has to do with regulatory changes, whether it’s Medicaid change, elimination of or potential changes to enhanced Affordable Care Act subsidies, or increased Medicare Advantage oversight. In addition, payers continue to contend with large increases in medical costs, which we see acknowledged in rate actions from the Centers for Medicare & Medicaid Services. Finally, payers, in particular some of the smaller and midsize players, are confronting increasing capital demands and talent scarcity, especially when it comes to technology.

H.R.1 will likely raise the performance imperative, as well as the basis of competition for payers—it will have an impact on how much money flows into the system from government, and also on the insured pool. There are at least two ways that this could play out for payers. One is that payer financials decline. This could relate to coverage declines, but in many cases will be more an issue of risk pool realities and more a consequence of retaining or acquiring insured lives. The other, more optimistic end game revolves around productivity. There is a real productivity imperative facing our industry. Payers that think really hard about how to win the productivity game will come out of this ahead.

What are the opportunities for payers?

Adi Kumar: The one that everyone is talking about is AI. It’s easy to think about AI as a way to automate general and administrative functions such as claims processing or call center operations. Payers should look beyond those improvements to how AI can help not only in their growth ambitions and attracting new members, but also in managing care and health better. In addition, there are the opportunities with more tested means of technology modernization that other sectors have already benefited from.

Payers are also facing a larger number of people who require true care management, whether that is the growth that we’re seeing among Medicare and Medicaid dual eligibles or other complex populations. It is an opportunity for payers to shine in one of the roles that they hold most dear, helping manage the care of their members when factually they don’t control a large chunk of the delivery system.

Another opportunity that we haven’t talked about as much is the consumer and customer revolution that many other industries, such as banking and airlines, have gone through.

Healthcare is the last sector in America that hasn’t had a technological revolution. I’m not talking about back end stuff, but rather having an impact on the consumer.

There’s real frustration with the industry out there, primarily because of how people feel interacting with organizations in the sector. A big opportunity is how to make the lives of people trying to interact with their organizations better and make the interaction seamless.

What should a CEO in the payer sector do right now?

Adi Kumar: To keep it simple, every CEO could do two things. One is to figure out what kind of business they want to be in. I say that not to try to be provocative. It’s actually a very literal question when it comes to what’s happening in the healthcare industry. Payers are moving into the provider space, providers are moving into the payer space, they’re both moving into the services space, and some of them are moving into the manufacturing space too.

Some of it is just reactive. But underlying all of it, there’s a DNA question. You might be a payer today, but that might be the minority of your business tomorrow and vice versa. Addressing this question should focus the mind of boards on the big swings and bets those organizations want to make. And the only person who is in a position to focus the minds of boards is the CEO.

The second thing is that every payer CEO owes it to their stakeholders to figure out how to do more with less and, as a consequence, how to improve productivity. I purposefully use the word productivity because it comes down to delivering the same or better with less—and never more acutely has this industry faced this need as it does today.

Providers: Margin pressures continue

What is the outlook for the provider segment in 2026?

Rupal Malani: The headline answer is continued margin pressure in 2026. If you look back over the past several years, performance in the US provider sector has evened out after a bumpy few years following the COVID-19 pandemic. But health system performance as measured by operating margin has not rebounded to pre-COVID-19 levels.

Margin continues to be compressed due to the secular trends that have been affecting healthcare for many years. This includes aging demographics, which is driving lower relative reimbursement at the same time that utilization rates are higher. Government streams of work are cross-subsidized by commercially insured patients. The central question is whether in your geography there is sufficient population growth among the commercially insured to maintain a healthy rate of cross-subsidization and, therefore, a stronger operating margin.

As for H.R.1, many health systems have realized that there is a meaningful period of time before its impact is felt. We have projected that the forecasted disenrollment from Affordable Care Act and Medicaid participants will impact the average health system in an expansion state by 2.5 percentage points of margin.

What are the challenges facing providers?

Rupal Malani: First, there is continued regulatory uncertainty. There are open questions about the implications of H.R.1, including how states choose to implement elements such as provider taxes and eligibility checks.

A second challenge is the explosion of data and technologies. It’s crucial to have the discipline to prioritize and ensure your organization realizes the highest potential ROI on what is a very significant investment. The onus is on leaders to think of this as a business problem, not a technology problem. How can technology help the organization promote more consistent and efficient outcomes and how will analog and tech-related workflows have to change in a coordinated fashion to realize that value?

Finally, the talent shortage is a real challenge for health systems. This exists across geographies, across types of talent—not just physicians and nurses but techs as well—and is exacerbated by the burnout still experienced by workers in healthcare.

What are the opportunities for providers?

Rupal Malani: We are an incredibly labor-intensive industry where productivity levels have stagnated. Many clients are focused on stamping out the stubborn operational variability that exists in health systems, employing technology and AI to do so. This includes addressing everything from length of stay to physician access. Reimagining care models is another huge opportunity for providers.

What should a health system CEO do right now?

Rupal Malani: Many of our clients are taking advantage of the time before the impact of H.R.1 hits to shore up margins and create financial and operational resilience. They are taking a clear-eyed look at performance, comparing it to best in class, and acting to spur improvement.

What’s different about their approach now is first, a focus on performance management, data transparency, and accountability, and second, a focus on creating a standard operating chassis across the organization.

They are finding that these improvement efforts are much easier when operations are standardized across the footprint—for example, so that every nursing unit within and across hospitals uses the same workflows and tools. At the same time, these organizations are focused on employing technology to promote efficiency and consistency in outcomes, something that is facilitated by standard operating procedures.

These organizations are on the right track. We do see other organizations that are moving more slowly—some in hopes of regulatory changes and others content to move at a historical pace. We believe these organizations would also benefit from the focused action and disciplined performance management that some of their peers are pursuing.

Health services and technology: AI moves to the forefront

What is the outlook for the health service and technology segment in 2026?

Neil Rao: The HST outlook for 2026 builds upon what’s happened in 2024 and 2025, largely around the opportunities with respect to applications of AI. That is where more attention and talent is going.

The level of change and complexity that health systems and payers will face is massive over the next three to five years. There’s a question of who puts together more end-to-end offerings that solve real pain points for large customers, as opposed to the litany of point solutions that exist in many areas today.

Also, the OBBBA is creating headwinds for health systems and payers but providing opportunities for HST organizations that can help those players either on top-line performance or bottom-line savings. Given the bill’s implications, providers will have to behave differently. And that behavior will include making choices about engaging services players, and perhaps more importantly, making structural changes around the use of technology. This should be a tailwind for HST.

What are the challenges for HST?

Neil Rao: First, the HST landscape has seen an explosion in the number of organizations and point solutions. There is almost a sense of fatigue among potential buyers at both health systems and payers. How your solution stands out from the noise is one challenge that I think is only increasing.

There’s a second challenge around technology complexity for health systems and payers and concern around cybersecurity. Especially for nascent HST players, getting the full set of permissions to operate, in particular with data that is sensitive in those environments, can be a six- or 12-month onboarding cycle. In the life cycle of these companies, that is a totally foreign time frame and is also challenging given the pace at which these technologies change.

A third challenge is there’s still a shortage of the type of talent that can actually advance solutions, especially with respect to generative AI and more cutting-edge technology. The war for talent is not just with other players within healthcare but across industry.

What are the opportunities for HST?

Neil Rao: The biggest opportunities are those enabled by technology, where the offering that specialized players are able to develop increasingly can have meaningful strategic distance from what a health system can do on its own.

The other important opportunity is what’s propagated by the OBBBA. Health systems are often having to navigate a financial headwind that is at least two points of margin, which for many puts their organizations in the red. So the openness of CEOs, COOs, and CFOs to consider running their business differently—actually reengineering or reimagining part of their business—is a conversation that more folks will be open to over the next 12 months, especially after they complete their initial rounds of interventions and begin to seek sustainable longer-term solutions.

What should an HST CEO do right now?

Neil Rao: The first point is having absolute clarity about what the particular offering is and how you as a services technology player can gain strategic distance, particularly from what your customers are able to do on a homegrown basis.

Second is the war for talent, especially identifying technology talent who can help develop the product as well as the translation talent who can aid deployment within payers, providers, and other customers.

Finally, going to market and then pricing your solutions are the two steps that will require more attention, especially given how competitive the landscape is anticipated to be over the next 12 months.

Private capital: The outlook is brightening

What is the outlook for private capital in 2026?

Prashanth Reddy: It’s been a challenging few years to be an investor in healthcare, given the macro environment, funding, and interest rates. But I think we’ve turned a corner. There’s much more openness today within private capital to getting a deal done. So I think that 2026 will be a bounce-back year.

We are seeing an evolution in investors’ operating models for both fund operations and their portfolios. It’s probably the most common topic we get in terms of the underwriting process and portfolio value creation. And no conversation is complete today without discussing the impact of AI on investors and their portfolios.

When it comes to the potential for regulatory uncertainty, people are making decisions now that they might have worried about making a year ago. As a result, the velocity of acquisition, bolt-on, and other investment decisions is speeding up.

What are the challenges facing private capital in healthcare?

Prashanth Reddy: Picking the right place and ensuring you’re in the right micro pockets is a major challenge for private capital. Some segments have performed better than others on growth, innovation, and acceleration of value creation. Others have been affected by regulation and public perception of the role of private capital in the healthcare ecosystem.

Many business cases have been underwritten on point solutions, which address specific issues. Point solutions have been quite successful across the value chain in the last 15 years. But ensuring that the solution connects to the broader ecosystem and that there’s a real return on investment is becoming increasingly important.

There’s also a movement toward platforms and software-like characteristics—in other words, becoming more like banking, insurance, and consumer tech, where many areas have standardized. The challenge will be understanding how the specific capability of a portfolio company connects with the relevant platform so its solution doesn’t end up cut off from the value chain.

Last, the healthcare sector needs talent focused on automation, technology, and workflow platforms. As a sector, we have attracted less than our fair share of talent in that part of the value chain and those skill types.

What are the opportunities for private capital in healthcare?

Prashanth Reddy: There’s an evolution in the thinking about operational execution and value creation from day one. Everybody has said that they’re doing this but the realization of having to execute on it has quickly changed. This change is good not only for the industry and investors but also for society more broadly.

The OBBBA is already producing tailwinds. We’ve seen action and growth around payment integrity, cost of care, and medical cost management. Also, there is much more openness on the part of clinicians to using technology such as ambient transcription, which employs AI. Doctors have been forced to come in, kicking and screaming, to adopt technology and workflow that could shift the curve of clinical productivity.

What should a private equity managing partner do right now?

Prashanth Reddy: First, be bold. Private capital has unique advantages given its incentive model, governance, the ability to make nonlinear bets to solve a particular problem, and the ability to aggregate and connect the ecosystem.

Second, think hard about the war for talent. Extend business talent to technology and operations talent. Success here can act as a competitive moat, given, again, the incentive models and what private capital can offer as a platform.

Finally, there will be regulatory and potentially legislative movement in various parts of the value chain. But staying true to the promise of access, quality, affordability, and patient experience will always keep you on the right side of history and offer a defensible moat.

Pharmacy services: Big changes in the market ahead

What are the trends and changes that you see in the pharmacy services segment in coming years?

Alok Ladsariya: We expect an unprecedented rate of change over the next two years. Leaders in the space are rethinking economic models, pricing, and starting a steady march toward a realignment of incentives. We’ve already seen a breakneck pace of announcements—from payment model changes to store closures to value chain reconfiguration, most notably for weight loss and select specialty drugs.

In addition, there is a busy regulatory and legislative agenda at the federal and state levels. This will include a continuation of federal changes from this year, including Medicare Part D redesign, tariffs, drug price negotiations including the Most Favored Nation policy, direct-to-patient announcements, and coverage of drugs for weight-loss indications. State-level efforts will continue, including responding to legal challenges by finding alternate ways to develop transparency requirements, spread and rebate prohibitions, and network requirements.

Adam Apfel: One of the big changes in pharmacy services, especially retail pharmacy, is chains and independents going out of business or materially restructuring their footprint.

What you are going to see is a dramatic reduction in the number of pharmacy counters. Historically, we’ve been around 60,000 pharmacies in the United States. We believe that number is going to drop materially over the next 12 or 24 months. This trend has important implications for patients in terms of access, as well as how the economic leverage in the value chain continues to shift.

Another interesting implication of those changes is that other players may increase their footprint. We’re already seeing health systems expand much more aggressively into outpatient pharmacy. Some of the big-box retailers and grocery retailers could be placed to grow their pharmacy business in a way that they haven’t historically been able to do.

In addition, specialty pharmacy continues to change economic models, from supply chains to how to dispense different forms of medication. It is of particular interest to providers. They face a range of challenges, from reimbursement pressure to talent shortages, and are searching for funding sources anywhere they can find it.

Alok Ladsariya: The GLP-1 market continues to shift. These drugs have continued their exponential growth rate, as widely projected, which could dramatically accelerate with Medicare and Medicaid coverage. They have seen even higher cash-pay growth than expected, encouraging a commitment to the development of direct-to-patient sales channels from pharma, home delivery retailers, as well as the federal government.

Prices in the direct-to-patient channel, post-rebate payer net prices, and federally negotiated prices have started to converge. The open question is whether this is a GLP-1-only phenomenon. Will direct-to-consumer or net price constructs extend to other drugs? The answer is likely to be determined in part by regulation and in part by whether employers change their purchasing behavior.

What issues are top of mind for healthcare CEOs regarding the future of pharmacy services?

Alok Ladsariya: One big issue across the pharmaceutical value chain is a lack of trust from patients, pharmacists, employers, and regulators. This could be driven by a patient finding a drug cheaper off insurance, by the time pharmacists spend navigating administrative requirements, employers concerned about conflicting incentives, and how all of this plays out in the news cycle.

A second related issue is pricing transparency. There are various complex pricing mechanisms and cross-subsidies—it’s not clear that cross-subsidies actually help the entities on either side of that equation, but they are just very hard to unwind. How do you reestablish trust and unwind unnecessary complexity while defending a “normal” margin profile?

Adam Apfel: Pharmacy services is something that all players in healthcare interact with, from payers to providers to pharmacies and more. As a result, it should be top of mind for all healthcare CEOs. For example:

• Payer leaders are thinking about how to manage the growing spending on drugs.
• Health system executives are asking how to engage physicians to increase adoption of in-house specialty pharmacies.
• Pharmacy benefit leaders are focusing on how to continue creating customer cost savings while protecting economic performance in the face of stakeholder pushback and regulatory action.
• Retail pharmacy executives are figuring out how their central role in the pharmacist–patient interaction can better translate to a more robust economic model.

Innovation and technology: Increasing adoption of automation tools

What do you see as the most impactful innovations in healthcare today?

Gunjan Khanna: The ability to automate mostly manual workflows and processes will be an inflection point for the industry. Take, for example, revenue cycle operations, financial report generation, HR, and legal support, where we can see significant improvement in productivity and effectiveness.

You’re also seeing clinicians adopting AI technology here and there. But is adoption scaling? Are the tools all the right tools? Are technology and workflow coming together and matching up? All of that is something that the industry will have to solve. And we are still a few steps away from where you have a clinical AI doctor providing support, given accountability and governance issues.

Nonetheless, there are several support tools that are already available to clinicians. For example, there’s ambient listening, adoption of which has gone through the roof in the last two years. A majority of health systems and clinicians are aware of the technology, and many are using it on a regular basis. The reason it’s getting adopted is because it’s taking away the clinician’s administrative burden of having to write all those clinical notes and taking two hours at the end of the day to do so. But the clinicians are finding that the ambient listening is also helping identify some of elements of diagnosis and care as well as helping them with coding.

What is holding back the application of technology and innovation in healthcare?

Gunjan Khanna: I give kudos to the industry for trying to adopt and at least do pilots and test runs. However, most organizations don’t have a crisply defined AI strategy road map. In many cases, they’re deploying point solutions, which often do not give the scale and the confidence to deliver the return on investment that they were supposed to deliver. There’s a lack of follow-through to develop a more comprehensive end-to-end rewiring, whether it is for the whole organization or at least for a subfunction.

A second issue is workflow versus technology. Individual hospitals in a health system may not have the same workflows, but many vendors are coming forward with one-size-fits-all solutions despite the organizational nuances. Technologists have to develop a last-mile solution and do the customization to be able to make it fit the existing workflow.

What should a healthcare CEO do right now with respect to technology and innovation?

Gunjan Khanna: Healthcare CEOs are thinking about technology transformation in three different ways. A few bolder ones are openly considering it. On the opposite end is a category of folks who seem content with the status quo despite the headwinds they are facing. A third set is somewhere in the middle. They are excited about the promise of technology but unsure of what direction to take.

Not many executives are spending time thinking about the infrastructure that is needed to get the technology right. It’s just like designing a house—we want to make sure that the house’s foundation is solid. We need to build out the right approach for data infrastructure, for example, from a stacks and large language model perspective. How do you get all the infrastructure elements in place and what would be the approach to scale that across the organization? On top of that, how do I carry out change management? How do I get the right change agents within the organization to drive technology adoption?