The U.S. and California Healthcare Trends & Predictions Report: What Providers, Plans, & State Healthcare Entities Must Prepare For 2026 EDITION
| © 2026 Freed Associates, Inc. 2 Executive Summary This report highlights the eight trends that will matter most in 2026 and beyond, from the profound impact of cost pressures and AI to the expansion of value-based care, emphasis on consumer experience, deeper integration of behavioral health, and the reinvention of the healthcare workforce. In addition to forces that are directly shaping priorities for payers, providers, and state healthcare entities, consumer trends, including demographic shifts, breakthrough therapies, and higher expectations, are having an impact on the entire healthcare industry. At Freed Associates, our expert healthcare consultants bring to the table decades of real-world experience and deep industry insight to help organizations navigate a rapidly evolving landscape. With a finger on the pulse of emerging technologies, shifting patient expectations, regulatory changes, and market pressures, we understand the trends that will shape the future of care delivery. The insights in this report offer leaders a clear, practical view of what’s coming next and how to position their organizations for long-term resilience and impact. © 2026 Freed Associates, Inc.
3 Table of Contents Healthcare Industry Trends Cost Pressures Are Ushering in a New Era of Financial Discipline . . . . . . . . . . 4 AI Adoption Is Rewriting the Rules of Healthcare . . . . . . . . . . . . . . . . . . 8 Value-Based Care Is Reshaping Health System Strategy . . . . . . . . . . . . . . . 12 Behavioral Health Integration Is Advancing Whole-Person Care . . . . . . . . . . . 16 Healthcare’s Workforce Crisis Is Driving Systemwide Reinvention . . . . . . . . . . . 22 Consumer Trends Impacting Healthcare Demographic Shifts Are Rebalancing the Nation’s Demand for Care . . . . . . . . . 26 Breakthrough Therapies and Biologics Are Expanding Medicine’s Frontiers . . . . . 28 Consumer Experience Has Become a Core Measure of Performance . . . . . . . . 30
| © 2026 Freed Associates, Inc. 4 Margins remain historically thin as payers and providers face inflation, labor costs, and reimbursement lag. With expenses rising faster than revenue, traditional cost cutting is no longer enough. The next phase of healthcare finance demands greater discipline when balancing investment in technology and workforce with new efficiencies, risk strategies, and revenue integrity. Those that proactively modernize cost structures and align capital with strategy will build the resilience to invest in better care, technology, and people. Cost Pressures Are Ushering in a New Era of Financial Discipline. Financial headwinds are reshaping strategies across the healthcare sector. Labor, drug, and supply costs continue to rise faster than reimbursement, leaving most health systems operating with razor-thin margins. At the same time, the rollback of pandemic-era relief funding and growing state fiscal pressures are exposing deeper structural gaps and increasing uncompensated care. Providers are re-evaluating service lines, renegotiating payer contracts, and consolidating administrative functions to regain control of cost structures. Many are also managing rising labor With expenses rising faster than revenue, traditional cost cutting is no longer enough.
5 expenses, supply chain volatility, and growing levels of bad debt. Payers face parallel challenges: tightening margins as medical loss ratios climb, driven by rising utilization and higher acuity in postpandemic populations. At the same time, stricter CMS oversight of Medicare Advantage, along with new transparency and prior-authorization rules, are adding compliance costs. Between 2021 and 2023, overall inflation (12.4%) rose more than twice as fast as inpatient Medicare reimbursement rates (5.2%) INFLATION 200% Over the next 10 years, health expenditures are expected to continue to grow faster than the rest of the economy increasing from 17.6% of the GDP in 2023 to 20.3% of the GDP by 2033
| © 2026 Freed Associates, Inc. 6 Amid persistent margin pressure, cost cutting that goes beyond traditional approaches will be needed. Leaders are turning to advanced analytics, automation, and shared-service models to drive sustainable savings without compromising quality. Strategic partnerships are also on the rise. Provider–payer collaborations, delegated-risk arrangements, and value-based models offer ways to align incentives while managing total cost of care. But these strategies require new levels of data transparency, actuarial modeling, and trust to deliver meaningful ROI. Long-term resilience will depend on a new financial mindset that balances margin recovery with investment in technology and operational agility. The most successful organizations will treat cost discipline as a catalyst for innovation, creating room to invest in better care, technology, and people. Long-term resilience will depend on a new financial mindset that balances margin recovery with investment in technology and operational agility.
7 California’s healthcare ecosystem faces particularly acute cost pressures, shaped by wage mandates, Medi-Cal reimbursement limits, and ambitious caredelivery reforms. CalAIM Funding Realignment: Shifts Medi-Cal payment models toward total-cost-of-care accountability, incentivizing efficiency through population health management. Office of Health Care Affordability: Establishes a statewide 3% annual cost growth target starting in 2029, requiring payers and providers to report spending, improve transparency, and take corrective action if targets are exceeded. Healthcare Minimum Wage Law: Raises wages for healthcare workers to $25/ hour by 2026, increasing cost exposure for hospitals, clinics, and skilled-nursing facilities (SB 525). For payers and providers, these initiatives signal a new era of accountability and alignment, demanding greater financial agility and collaboration to thrive in California’s evolving, data-driven, and increasingly transparent healthcare economy. California Trends CONTACT AN EXPERT
| © 2026 Freed Associates, Inc. 8 The application and implementation of AI is accelerating across the healthcare industry, driving significant change in how care is delivered, documented, and analyzed. Physicians are now using AI for visit notes, discharge summaries, and research synthesis, while health plans are applying AI to claims, fraud detection, and population health. As AI adoption grows, organizations must pair innovation with accountability and ensure that governance, technology, and workforce readiness strengthen clinical quality and trust rather than undermine them. AI is transforming healthcare by streamlining workflows, improving diagnostic accuracy, and enabling more personalized, efficient care. AI Adoption Is Rewriting the Rules of Healthcare. AI use is surging: adoption is up 23% in the past year 23% Physician Use of AI 38% 66% 2023 2024 Healthcare AI spending exceeded $1.5 billion in 2025, nearly tripling 2024 investments $1.5B
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| © 2026 Freed Associates, Inc. 10 Starting with the problem rather than the solution and engaging multidisciplinary teams will be essential to realizing the promise of AI. Yet AI adoption is not without challenges. Many organizations struggle with high upfront costs, fragmented vendor tools, and uncertain ROI, making it difficult to move from pilot projects to enterprise-wide impact. Beyond financial considerations, equity and access risks are also rising. AI can unintentionally widen disparities if underserved populations lack trust in or access to digital tools, or if algorithms are trained on biased datasets that fail to represent diverse communities. Embedding equity into AI design, testing, and deployment is critical to ensuring technology benefits all populations, not just the most connected. Perhaps the most profound impact of AI will be on the workforce itself. AI is not only changing how staff are trained, it is also reshaping roles altogether. Some tasks may be automated, while others shift or expand, altering the daily work of physicians, nurses, and administrative staff. Preparing teams through reskilling, change management, and new performance models will be essential to realizing the promise of AI.
11 Effective organizational strategies will start by defining the problem and then leverage AI as a solution rather than positioning AI as the objective. Developing sustainable financial and operational models will determine whether AI delivers long-term value or reinforces existing gaps. Patients are warming to the use of AI in healthcare, and developing patient literacy, trust, and consent is critical to delivering lasting impact. California has moved faster than most states in regulating healthcare AI, prioritizing safety, transparency, and equity. Clinical Oversight Requirement: Requires licensed clinicians to review and approve AI-based care decisions (SB 1120). Transparency and Human Access Mandate: Mandates disclosure of generative AI use and guarantees patient access to human clinicians (AB 3030). A I Bias and Fairness Audits: Requires regular audits of high-risk AI systems to assess and mitigate bias (AB 2885). Together, these measures reinforce California’s position as a testing ground for responsible healthcare AI, where transparency, clinical oversight, and innovation converge to shape national standards for safe and equitable AI adoption. California Trends CONTACT AN EXPERT
| © 2026 Freed Associates, Inc. 12 VBC programs are accelerating adoption of telehealth, remote monitoring, and digital health tools by embedding these technologies into everyday care and population health management. Success will hinge on stronger data sharing and analytics that connect care across all settings. Payers need reliable data pipelines and reporting tools to manage cost and quality. Providers must modernize systems and use performance dashboards to track outcomes. Home, community-based, and behavioral health partners are becoming Value-Based Care Is Reshaping Health System Strategy. The shift from fee-for-service to value-based care (VBC) is redefining how healthcare is delivered and reimbursed. Payment models increasingly reward outcomes, prevention, and coordination, as CMS and commercial payers refine and expand shared-savings and bundled payment programs. The next phase will demand even stronger links between financial strategy, data analytics, and clinical execution. Organizations that embed these connections across teams will turn reform into measurable, sustainable performance. Value-based care creates enormous opportunity but demands deep organizational transformation. Providers that adapt successfully can unlock new revenue streams while advancing patient outcomes. Ultimately, value-based care is as much a cultural shift as a financial one.
13 essential in supporting prevention, chronic care, and smooth transitions after hospital stays. Financial alignment will be critical as providers assume greater levels of risk. Success requires stronger financial modeling, quality reporting, and contract management to ensure sustainability. For payers, the challenge lies in balancing provider incentives with predictable total cost of care and a clear ROI on quality-based contracts. Ultimately, value-based care is as much a cultural shift as a financial one. By prioritizing prevention, chronic disease management, and whole-person health, these models reward collaboration and accountability, recognizing providers who keep patients healthy rather than those who simply deliver more services. $6.16 trillion: Estimated U.S. value-based care market size by 2030, growing at a 7.4% CAGR from 2025 to 2030 $6.16 Trillion by 2030 CMS’s goal is to have 100% of Traditional Medicare beneficiaries and the vast majority of Medicaid beneficiaries in VBC by 2030 100% VBC by 2030 Provider participation in VBC increased 25% from 2023 to 2024
| © 2026 Freed Associates, Inc. 14 California is not only expanding the reach of value-based care but also shaping how these models are tested and scaled nationwide. CalAIM Expansion: A $6 billion annual initiative that will move 90% of MediCal providers into risk-sharing models by 2027. California Advanced Primary Care Initiative: Unites multiple payers to pilot a blended payment model combining capitation, fee-for-service, and population health incentives. Statewide Data Exchange Framework (DxF): California’s first mandated health data-sharing system, creating a common foundation for coordinated value-based care (AB 133). By aligning public and private innovation, California is establishing itself as a national model for value-based transformation, demonstrating how coordinated payment reform, shared data, and population health incentives can drive measurable outcomes across systems. California Trends CONTACT AN EXPERT
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| © 2026 Freed Associates, Inc. 16 Behavioral Health Integration Is Advancing Whole-Person Care. Behavioral health integration is expanding across primary, specialty, and community settings as rising demand reshapes care priorities. Health systems are deploying screening, coordination, and digital tools to connect mental and physical health. Evolving payment models and new technologies are making integrated, measurement-informed care increasingly scalable. The most successful organizations will treat behavioral health not as an adjunct but as a core function vital to outcomes, cost control, and wholeperson well-being. The most successful organizations will treat behavioral health not as an adjunct but as a core function vital to outcomes, cost control, and whole-person well-being.
17 Mental health costs the U.S. economy more than $280 billion annually, and its aggregate cost is equal to 1.7% of the country’s annual consumption. Growing demand for behavioral-health services, persistent workforce shortages, and rising rates of depression and anxiety are pushing payers and providers toward more integrated care models. Many health organizations now list behavioral health access among their top population health priorities. Integrating behavioral health into routine medical care is reshaping how providers approach prevention, treatment, and longterm outcomes. Embedding mental-health screening, care coordination, and brief interventions within primary care enables earlier identification, better adherence, and The percentage of U.S. adults who report currently having or being treated for depression exceeded 18% in both 2024 and 2025, up about eight percentage points since the initial measurement in 2015 20 18 16 14 12 10 8 6 4 2 0 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 U.S Adult Depression Rate Now Exceeds 18% % 10.5 13.4 12.5 18.3 Source: Gallup Panel. 2025 results based on n=11,288 randomly selected U.S. adults. Data not available in 2021 and 2022.
| © 2026 Freed Associates, Inc. 18 However, privacy rules and siloed systems still constrain behavioral health data sharing. Technology is making this integration scalable. Unified EHRs, care management tools, and interoperable data exchanges allow providers to identify and manage behavioral health needs within existing clinical workflows. AI-enabled risk stratification models are helping health plans predict crises before they occur, improving both patient outcomes and cost control. fewer avoidable hospitalizations. Digital solutions from teletherapy to AIdriven assessments broaden behavioral health access while personalizing support based on real-time engagement data. Reimbursement models are also evolving. Payers are introducing integrated payment structures and shared-savings arrangements that align incentives between primary care and behavioral health providers. These models reward holistic, whole-person care and recognize that mental and physical health outcomes are deeply interconnected. Reimbursement models are evolving. Payers are introducing integrated payment structures and shared-savings arrangements that align incentives between primary care and behavioral health providers.
19 Mental Health (MH) and Substance Use Disorder (SUD) Spending as a Share of Total Medical Expense in the Commercial Market 5.8% 0.7% 6% 0.7% 6.3% 0.9% 6.5% 0.9% 6.7% 0.9% 7.2% 1.0% Behavioral Health Spending in California SUD MH 2018 2019 2020 2021 2022 2023 $3.1B $3.3B $3.4B $4.3B $4.7B $5.1B CONTACT AN EXPERT
| © 2026 Freed Associates, Inc. 20 California is advancing one of the nation’s most comprehensive behavioralhealth transformations: Behavioral Health Modernization Package: A $6.4 billion initiative investing in infrastructure, workforce, and technology to expand behavioral health and substance use services statewide. CalHIVE Behavioral Health Integration Pilot: Supports 35 health systems to integrate screening and care coordination into primary and specialty care using shared data and performance dashboards. CalAIM Behavioral Health Reform: Expands Enhanced Care Management and community supports to include behavioral health integration, connecting members to therapy, medication management, and social services through managed-care plans. California’s approach reflects a holistic commitment to behavioral health access and whole-person health, ensuring that modernization of behavioral health truly benefits every community. CONTACT AN EXPERT California Trends
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| © 2026 Freed Associates, Inc. 22 Persistent workforce shortages and burnout are straining healthcare delivery while digital tools and virtual care are reshaping how work gets done. Organizations must build capacity while simultaneously adapting roles, training, and leadership models for a tech-enabled environment. Workforce resilience will depend on flexible staffing, digital fluency, and new models of care team support. Leaders will need to invest as deliberately in people as they do in technology, treating workforce strategy as central to transformation. The healthcare workforce is in the midst of a structural overhaul. Health systems face dual Healthcare’s Workforce Crisis Is Driving Systemwide Reinvention. Health systems face dual imperatives: rebuilding capacity lost to retirements and burnout while simultaneously adapting to new models of work shaped by digital tools and virtual care. imperatives: rebuilding capacity lost to retirements and burnout while simultaneously adapting to new models of work shaped by digital tools and virtual care. AI and automation are beginning to ease administrative tasks, including scheduling, documentation, and claims, allowing clinicians to focus more on direct patient care, but these technologies also demand new technical literacy, oversight, and changemanagement strategies. Competition for digitally skilled talent is intensifying. As virtual-care, datadriven, and AI-enabled operations expand, roles such as care
23 The U.S. healthcare system is projected to face a shortage of approximately 100,000 critical healthcare workers by 2028 Physician burnout costs the U.S. healthcare system approximately $4.6 billion annually, largely due to turnover and reduced work hours coordinators, data analysts, and telehealth nurses are growing rapidly. Healthcare organizations are experimenting with hybrid work, flexible scheduling, and multistate and offshore staffing models to attract and retain scarce talent, as well as reduce costs. At the same time, the aging clinical workforce and uneven distribution of professionals are amplifying access gaps, particularly in primary care, behavioral health, and rural settings. Meeting future demand will require cross-training, career ladder programs, and stronger academic-employer pipelines to align education with evolving care delivery models. Ultimately, workforce sustainability will depend on investment in employee wellbeing, professional development, and leadership resilience. Organizations that integrate workforce strategy into their overall transformation, embracing flexibility, digital competence, and inclusive training, will be best positioned to deliver consistent, highquality care in an increasingly complex system.
| © 2026 Freed Associates, Inc. 24 California is confronting one of the nation’s most acute healthcare workforce challenges and is responding through targeted investments in training and innovation. High Road Training Partnerships ( 2025 Grants): Expands workforce development for high-demand roles such as nursing, behavioral health, and community care. Workforce Education and Training Program (DHCS): Builds capacity in rural and underserved areas through scholarships, telehealth training, and digital-skills development. Center for Caregiver Advancement: Provides specialized upskilling and apprenticeship programs for long-term care and home care workers. By coupling policy reform with workforce investment, these initiatives underscore California’s long-term commitment to creating a sustainable, digitally fluent healthcare workforce that can meet the needs of its diverse and aging population. CONTACT AN EXPERT California Trends
25 Consumer Trends Impacting Healthcare
| © 2026 Freed Associates, Inc. 26 America’s population is aging, diversifying, and moving, and as a result, reshaping where and how care is needed. By 2034, adults 65 and older will outnumber children for the first time in U.S. history. This population shift will drive greater demand for chronic care, long-term services, and home-based support. Meanwhile, shifting migration patterns are widening regional disparities in access. Systems positioned to realign services, facilities, and workforce distribution will be best equipped to meet shifting population needs across regions. Demographic Shifts Are Rebalancing the Nation’s Demand for Care.
27 California’s demographic diversity and regional disparities make it a microcosm of national change. State investments in addressing an aging population, rural access, and workforce distribution are shaping how care delivery adapts to shifting populations. By 2034, adults 65 and older will outnumber children for the first time in U.S. history. CONTACT AN EXPERT Seniors will make up about one in four Americans (26%) a decade from now, leading to higher demand for health services Seniors in 2035 California Trends 26% 95% 80% Chronic Conditions in Older Adults Have One Have Two or More Adults Age 65+ Increase In Hospitalization More Frequent Doctor Visits
| © 2026 Freed Associates, Inc. 28 Gene therapy, biologics, and specialty pharmaceuticals are redefining treatment possibilities from cell-based cancer therapies to GLP-1 drugs advancing obesity care. These innovations are blurring the lines between acute and chronic disease management while raising new ethical and financial questions about equitable access and cost. Those that proactively integrate innovation with affordability and patient access will turn scientific breakthroughs into sustainable care delivery. Breakthrough Therapies and Biologics Are Expanding Medicine’s Frontiers. California’s leadership in biotech and life sciences ensures that new therapies move from discovery to delivery faster, positioning the state as both an innovation hub and a proving ground for the next generation of precision medicine. The broader biotechnology market* is projected to expand from about $478.5 billion in 2024 to roughly $1.78 trillion by 2034 *Including personalized medicine, gene editing, etc. CONTACT AN EXPERT California Trends
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| © 2026 Freed Associates, Inc. 30 Consumer expectations are reshaping healthcare delivery and performance measurement alike. Patients now expect digital ease, personalization, and transparency across their care journey. Experience has become a key driver of Star Ratings, loyalty, and long-term retention. The future will favor organizations that combine digital ease with human connection, creating experiences that are both seamless and meaningful. Leaders who build trust through clarity, consistency, and compassion will turn experience into lasting competitive advantage. Consumer Experience Has Become a Core Measure of Performance. By embedding experience into quality, California’s payers and providers are redefining what patient-centered care means, merging digital ease with human connection to build loyalty, trust, and better health outcomes. More than 90% of people say convenience is the most important factor when selecting their primary care physician CONTACT AN EXPERT 90% CONVENIENCE California Trends
31 79% of Gen Z uses health tech, such as wearables, telehealth, online prescription services, etc., on a monthly basis (vs. 70% of all consumers) 79% GEN-Z While 72% of consumers received care at a doctor’s office in the last 12 months, only 34% say they would ideally like to receive care at a doctor’s office in the future
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