Key takeaways
- Healthcare systems are facing rising operating pressure, thinner margins, and a harder question about how to manage liquidity across the balance sheet as capital needs become more uncertain.
- Liquidity is an issue, and an enterprise risk management approach that factors in organizational risks when setting investment strategy can help.
- Long-term success requires an integrated approach that aligns the operating, financing and investment strategies to provide resilience in times of stress while still enabling growth for the future.
Pressures mount on healthcare systems
Healthcare systems across the country are facing a difficult reality. Costs are rising faster than revenues, balance sheets are under pressure, the pacing of private market allocations are harder to manage, and liquidity has become an important topic for many organizations.
The concern is understandable. In 2025, hospital expenses rose 7.5%, more than double the growth rate of hospital prices. Drug costs increased 13.6%, medical supply expenses climbed 9.9%, and workforce costs rose another 5.6%. Workforce spending now represents roughly 60% of total hospital expenses. The sector also continues to face elevated cybersecurity spending, reimbursement uncertainty, labor shortages, and major infrastructure and technology investment needs.1
At the same time, margins remain historically thin. Kaufman Hall data showed hospitals finishing 2025 with operating margins near 1.3%, despite some stabilization in patient volumes and utilization trends.
In this environment, the real test for healthcare systems comes when they need to tap long-term reserves to support operations, fund capital projects, or meet broader enterprise needs.
Some organizations can successfully manage by making sure the strategic asset allocation across the long-term pool allows for sufficient liquidity and does not overextend into illiquid private assets. For others, it may mean bifurcating the long-term pool into shorter- and longer-horizon segments so the organization can preserve flexibility while still pursuing long-term growth. In practice, that can look similar to the way some institutions think about medium-term and long-term capital, with different investment horizons and different return objectives.
Shifting to an ERM approach
The pressure is not just about liquidity. It is about how operating needs, capital plans, debt capacity, and investment strategy interact when the environment changes. A hospital system that can tolerate investment losses from a down market in one year may still face a serious problem if that same year includes weak operating results, debt issuance, or a capital project that requires funding.
That is where an enterprise risk management approach can help. Healthcare organizations should be asking how much risk they can afford to take to pursue the returns they need, and how that decision would affect the rest of the financial plan if markets or operations come under pressure. The answer will not be the same for every system, and there is no single model that solves the problem for everyone.
What matters is the process. Organizations need to look across the enterprise, assess the timing of expected capital needs, and stress test the impact of different market environments. If the market is down 20% next year, what does that do to resources, borrowing flexibility, and mission delivery? If operating performance is weaker than planned, how much liquidity is available without disrupting longer-term objectives? If capital spending needs increase, will the capital be sourced from operations, debt issuance or tapping reserves?
Those are enterprise questions, and demonstrate how operations, financing and investment strategy cannot be evaluated in isolation.
An enterprise risk management approach ensures the organization uses a coordinated framework to set investment strategy across the balance sheet, with clear attention to risk capacity, growth objectives and liquidity needs.
That is crucial in healthcare because the enterprise has multiple capital demands at once. The operating plan needs flexibility. The long-term pools need to provide growth for the future. The organization may need access to capital for facility expansion, technology investment, or debt support. Some systems also have academic medical center structures where the hospital and the university are intertwined, which adds another layer of balance sheet complexity. In those cases, the question becomes even more defined: how should capital be structured so it can support the institution today and still preserve resilience for tomorrow?
A thoughtful enterprise risk management approach can be a powerful solution. It allows leadership to integrate the investment strategy with the financial plan rather than treating portfolio strategy as a separate exercise. It also helps decision-makers see the trade-offs more clearly. More liquidity usually means lower expected return. More illiquidity may improve long-term return potential, but it can reduce flexibility when the enterprise needs cash. There is no free lunch, which is exactly why the structure matters.
What healthcare systems should be solving for
The goal is not to maximize return in a vacuum. The goal is to support the mission through a range of operating and capital market conditions. That means ensuring there is enough flexibility to absorb shocks, enough liquidity to support unexpected needs, and sufficient asset growth to preserve long-term purchasing power.
Healthcare systems increasingly need integrated frameworks that include stress testing, liquidity tiering, capital call pacing, scenario analysis, debt planning, and rebalancing across time horizons. They also need governance that can connect those considerations to the organization’s financial plan, rather than treating them as separate workstreams.
Discussions shouldn’t focus on whether liquidity is important—it is. The real issue is how to structure the balance sheet so the organization can meet near-term obligations, preserve long-term return potential, and maintain enterprise resilience at the same time.
Healthcare systems are not just facing a liquidity problem; they are facing an enterprise strategy question.
The organizations that are likely to be best positioned over the next decade will be the ones that think carefully about how their capital is segmented, how much flexibility they need, how their investment strategy aligns with their financial plan, and how to balance return potential against the real possibility that long-term capital may need to support enterprise needs sooner than expected.
That is the real investment challenge in healthcare today, and it is why having an enterprise risk management approach is becoming more important than ever.
1Source: American Hospital Association, 2026 Cost of Caring Report
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