Southeast healthcare, treading water, may soon struggle

While Southeast nonprofit healthcare providers are generally doing OK financially, developing and planned cutbacks to Medicaid and other federal health programs will pressure them in the next two years, analysts say.

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Five of the country’s top nine state poverty rates are in the Southeast and since Medicaid benefits are for poor people, cuts planned for 2027 and 2028 are likely to disproportionately hit healthcare providers in those states. 

“It’s clear that the changes in [President Trump’s One Big Beautiful Bill Act] are quite negative for healthcare,” said Joseph Krist, publisher of Muni Credit News.

“When you add the changes coming on January 1 to the current real time declines in Affordable Care Act [health insurance] coverage, the pressure on liquidity will mount. Size will only cushion the blows by so much,” he said. 

“In many ways, the coming changes are really just a return to the conditions of 20 years ago when uninsured patients went to emergency rooms for what could be taken care of in urgent care and the providers looked to the states for help to cover indigent care costs,” Krist said. “Those are the very conditions [that] drove support for the ACA in the first place.” 

The rating agencies are mostly neutral about the healthcare sector for the next several months.

“Generally, financial performance has remained fairly on par with 2025 results, hospitals are still in a period of recovery but earnings before interest, depreciation and amortization margins have not returned to pre-pandemic levels,” said Rita Strauss, vice president of public finance at Moody’s Ratings. “Most health systems are still absorbing labor costs and dealing with inflation. Volumes, however, are continuing to recover with the largest growth on the outpatient side. Balance sheets have remained strong as well.”

Strauss and S&P Global Ratings Sector Lead for Nonprofit Healthcare Suzie Desai said nonprofit healthcare organizations in the Southeast are in similar condition to those in other regions. 

Other analysts are more concerned about the healthcare sector’s current financial condition and all analysts contacted for this story, including the rating agency analysts, said federal policy changes in the next two years will pressure the sector. 

Several states in the Southeast spend more than 20% of their Medicaid budgets to pay providers near the rates that commercial insurance pays, said Justin Marlowe, research professor at Harris School of Public Policy at the University of Chicago. “Those payments are a major revenue source for many non-profit hospitals but they’re also subject to the largest cuts under the caps imposed by the One Big Beautiful Bill.”

These and other financing changes, “along with shrinking Medicaid enrollment due to the new eligibility rules and work requirements, have squeezed state Medicaid programs from several directions,” Marlowe said. 

Another problem is the “comparatively large Medicare population in places like Florida and Alabama and the fact that Medicare tends to pay hospitals less than their cost of care,” Marlow said.

“That means even less room to respond to the Medicaid cuts,” he said.

“The number of uninsured and underinsured individuals will likely rise during the next two years,” S&P said in a report on nonprofit acute care providers on Oct. 13. “The Congressional Budget Office estimates that about 7.5 million Medicaid enrollees will lose their insurance by 2034 and an additional 4.0 million will lose their insurance because of changes to the ACA insurance marketplace exchanges.”

“This could result in reduced volumes for providers and an increasing number of patients who are unable to pay for healthcare services. And if patients choose to delay care, their conditions could worsen, making treatment more expensive,” S&P said. 

“As rising costs for both patients and providers mix with the planned federal policy changes in 2027 and 2028, additional downside risks for acute not-for-profit healthcare credit ratings could emerge,” S&P said. 

Desai said the planned cuts to Medicaid over the next two years will stress the nonprofit healthcare sector. 

As Medicaid cuts are rolled out, “margins on various procedures will be affected,” said John Hallacy, president of John Hallacy Consulting, LLC.

“Hospitals may choose to trim certain procedures that they offer… Uncompensated care will increase along with write-offs,” he said. 

“Rural hospitals in the Southeast often serve as the safety net hospitals and they almost always have the thinnest margins – because of the most uninsured patients,” said John Mousseau, executive vice president and chief investment officer at Cumberland Advisors. “Their financial status is almost directly correlated to the wealth demographics of the area. The cuts from the OBBBA put limits on provider taxes and state direct payments. We think a lot of hospitals are scrambling to get federal matching funds before cuts take effect.”

Federal compensation rates for Medicare Advantage won’t increase as fast as inflation but won’t be that bad, Desai said. 

Besides changes to federal programs, other factors are pressuring the sector, analysts said. 

“Inflation continues and the cost of capital continues to rise,” Krist said.

“Every hospital faces rising costs and some shortages of basics…. Another cost will be the decreasing availability of immigrant labor to perform many basic hospital tasks. This will drive higher labor costs,” he said. 

“Nonprofit hospitals were stressed even before these federal policy changes,” Marlowe said. “There were reports that more than a third lost money from 2019-2023. That trend will inevitably mean closing less-profitable service areas like behavioral health, more deferred capital spending and perhaps even closures and consolidations.” 

More important than rising healthcare costs are the higher costs across the economy, Marlowe said. “Employers respond to higher costs by shifting them to workers and workers often respond by shifting to high-deductible, low coverage insurance. In lower income regions, especially in the Southeast, that means more patient balances that go uncollected.”

There are rising costs for patients, employers, and health insurers themselves, and many resist paying them, Mousseau said. Hospitals are hit by this as well as the cuts to Medicaid and the ACA. “Bottom line – more insured patients who won’t be able to pay their share and costs rising faster than revenues.”

“Less demand, higher operating costs and significant revenue uncertainty: It all adds up to a negative outlook,” Krist said. 

“Non-labor expenses, including pharmaceuticals, supplies and purchased services, continue to grow due to inflation and higher utilization,” Moody’s said in its report, “Hospital performance steady in 2026, amid policy shifts and higher costs,” released in July. 

“Larger systems with stronger market positions, greater scale and more diversified revenue sources are generally better positioned to absorb these pressures than smaller standalone providers,” Moody’s said.

“Higher margin business will do fine,” Hallacy said. “Lower margin offerings may be cut back or eliminated… Having a more active fundraising program and growing the endowment will be more important than ever. All participants will pay even more for basic coverage.” 

The Bond Buyer identified two Southeast nonprofit healthcare issuers with speculative ratings and $90 million or more debt outstanding. They are:

•  UNC Health Southeastern (formerly Southeastern Regional Medical Center) based in North Carolina and issued by Wisconsin’s Public Finance Authority. It is rated BB-minus with a stable outlook by S&P and had $139 million of outstanding debt as of Sept. 30, 2025.
• Southwest Louisiana Hospital, based in Louisiana and issued by Calcasieu Parish Memorial Hospital Service District. It is rated BB with a stable outlook by S&P and had $90.9 million in debt as of March 31, 2025.