Article
Healthcare capital markets activity continued to rebound through 2025, as healthcare organizations pursued focused capital spending on renovation and modernization of existing facilities, as well as targeted growth in specific service lines. This rebound was reflected in the growth of total issuance, which at approximately $50 billion was up 34% from 2024 and just below the $55 billion peak seen in 2017.
We expect this trend to continue into 2026, with several clients now projecting multi-year capital budgets that reach into the billions of dollars. Many systems are entering master facility planning cycles that include large-scale replacement hospital projects, where total costs can easily exceed $5 million per bed. Investment in enterprise technology remains a priority, with EHR implementations and upgrades continuing across the sector. And all health systems are facing a window of opportunity in 2026 to enhance liquidity before the impacts of H.R.1 (also known as the One Big Beautiful Bill) begin to hit in 2027.
If you are considering accessing funding sources for any number of capital needs, both traditional and alternative capitalization strategies are available to help balance these needs with balance sheet preservation. The challenge is selecting the strategy that best meets your organization’s long-term needs.
Following a very strong year for municipal debt issuance in 2025, we expect to see similarly strong issuance in 2026 as more organizations seek to capitalize on favorable market access. We should also see a return of refunding activity as many 2015 and 2016 bond issues approach their 10-year call dates. A decline in interest rates, although uncertain (see sidebar), would further support incremental refunding volume, but even in a range-bound rate environment, access to capital remains strong.
The Federal Reserve began its current easing cycle in 2024, with three cuts totaling 100 basis points (bps) by the end of the year. That cycle continued through 2025—interrupted by the onset of the current administration’s tariff policies in April—ending the year with a total easing of 75 bps.
Early into 2026, there is uncertainty around the path of interest rates moving forward, exacerbated by the end of Fed Chairman Jerome Powell’s term in May 2026 and a heavy expected issuance of Treasuries. In January, J.P. Morgan was one of the first banks to change its forecast, removing its prediction of a January 2026 rate cut and signaling a potential rate hike in Q3 2027.[1]
Expectation for continued range-bound long-term rates given macroeconomic uncertainties will put pressure on the long end of the yield curve and likely lead to the preservation of the steep curve that emerged in 2025. This will likely further push borrowers into the intermediate part of the yield curve for short-term fixed, or “quasi-variable rate” issuance, as we have begun to call it. Case in point: Over half of healthcare bond issuance in 2025 came with a maturity shorter than 10 years.
A key tenet of optimal capital structures is maintaining flexibility and optionality moving forward. This trend continues to be seen through the issuance of short-dated fixed-rate products and increased use of variable rate issuance across the muni market. With ratios remaining rich, especially in the long-end of the yield curve, and uncertainty ahead, some early 2026 financings have seen limited investor interest in long-dated bonds.
Variable-rate debt should have a place in most health systems’ capital structures. Issuance of variable-rate debt by healthcare borrowers totaled approximately $14 billion in 2025, nearly double 2024 levels and the highest volume seen in more than a decade.[2] Over the past few decades, variable-rate borrowing has provided meaningful cost advantages relative to fixed-rate debt, though much of that benefit was driven by an extended period of near-zero short-term rates. For much of 2024 and into early 2025, variable rates exceeded fixed rates depending on tenor, but following 175 bps of Federal Reserve rate cuts over the past 18 months, variable-rate products have again become more attractive.
While some health systems remain cautious about increasing variable-rate exposure, many have a natural hedge through their fixed income investment portfolios, which tend to benefit from rising interest rates. In practice, some organizations may be better positioned in a rising rate environment than commonly assumed. Variable-rate products are most often utilized when borrowers seek short-term flexibility or wish to avoid locking in longer-term fixed rates, though a portion of capital structures should be dedicated to permanent variable exposure.
Contributing to increased adoption has been the continued outperformance of SIFMA relative to SOFR-based products, with SIFMA averaging approximately 64% of SOFR during 2025, consistent with 2024 levels. Many issuers have taken advantage of this dynamic by utilizing SIFMA-based products to reduce variable borrowing costs.
Over the past 24 months, more than 20 healthcare systems have implemented or expanded commercial paper programs. This includes increased adoption of tax-exempt commercial paper, which is generally the lowest-cost borrowing option available, particularly for systems able to utilize self-liquidity.
Organizations are increasingly using commercial paper for working capital and interim financing needs rather than drawing on bank lines of credit or pursuing traditional bridge financing. While many systems continue to maintain existing lines of credit given the decline in unused commitment fees, there has been a recent trend toward consolidating into a single syndicated facility across multiple banks to reduce administrative complexity.
Commercial paper is not appropriate for all organizations, particularly lower-rated credits that cannot rely on self-liquidity and may face higher borrowing costs or structural limitations. For these issuers, alternative short-term liquidity solutions, including bank credit-backed products, may remain more appropriate despite higher all-in costs.
The “total return” product—a favorite of investment banks—has seen a resurgence in 2025. Under this structure, a borrower issues long-dated fixed-rate bonds that are purchased directly by an investment bank, followed by a swap transaction that converts the fixed-rate obligation into an effective variable-rate cost of capital. This approach has proven attractive for certain borrowers, as the underlying bonds cannot be put back to the issuer and typically do not require a public rating or ongoing disclosure. Similar synthetic variable-rate structures can be achieved through short-dated public market issuance, though execution depends heavily on market conditions at the time of sale.
Total return products can also be attractive for lower-rated credits or in situations where a higher-rated parent organization is unwilling to guarantee debt repayment but is willing to guarantee swap obligations in order to avoid debt consolidation. Variations of this structure have also been used in select real estate foundation lease transactions to reduce overall cash outlay associated with rent payments. While the standard total return structure includes a swap, which will dissuade some organizations, alternative structures exist that do not require swaps (though these approaches introduce their own complexities and considerations).
Health systems continue to closely watch how peers are raising capital and investing in infrastructure, and Energy-as-a-Service (EaaS) arrangements are a prominent discussion topic. In our view, organizations should first determine whether the primary rationale for pursuing an EaaS structure is operational benefit and risk transfer or capital monetization. While some systems have begun to use EaaS as an alternative pathway to generate liquidity, rating agencies are applying increased scrutiny, particularly in cases where transactions extend beyond accretive scope or are structured to extract material upfront proceeds.
As the EaaS market continues to mature, more participants are entering the space and becoming familiar with concession-style structures that have been used in the public sector. To date, most EaaS transactions have focused on brownfield projects with identifiable cost savings, though some systems are now exploring EaaS as a financing option for greenfield developments that require stand-alone energy plants. In these cases, the structure may offer a way to reduce upfront capital requirements while transferring construction and operating risk. While many organizations ultimately may decide not to pursue an EaaS transaction, a growing number are evaluating the structure as adoption by peers increases.
As health systems expand outpatient and ambulatory strategies, many are evaluating alternative financing approaches that require less capital than traditional inpatient expansion. Credit tenant leases and the newer foundation lease model have emerged as attractive rent-to-own structures for outpatient assets, offering flexibility in capital deployment while supporting strategic growth. In select circumstances, operating lease treatment may be achievable, though execution requires careful structuring and ongoing diligence, and missteps can quickly undermine intended balance sheet benefits.
Rating agencies have increasingly signaled that these and other quasi-debt structures will be evaluated through broader adjusted debt metrics, reinforcing the importance of understanding how alternative capitalization strategies affect leverage and credit profiles. In parallel, joint ventures and partnerships continue to serve as capital substitutes, particularly in rehabilitation, behavioral health and other specialized service lines. These arrangements allow systems to expand access and capabilities while limiting direct capital deployment, further underscoring the role of alternative structures in capital planning discussions.
In addition to alternative financing structures, some health systems are evaluating opportunities to monetize non-core assets as a means of improving balance sheet flexibility and redeploying capital toward strategic priorities. These efforts often include the sale or partial monetization of medical office buildings, administrative facilities, parking assets or other real estate that is not central to core clinical operations. In many cases, proceeds are used to support capital investment in inpatient facilities, ambulatory growth or technology initiatives rather than to fund ongoing operations.
Asset monetization strategies are typically evaluated alongside long-term control, flexibility and credit implications. While sale-leaseback transactions and similar structures can unlock liquidity, organizations are increasingly focused on ensuring that such arrangements align with broader capital planning objectives and do not introduce undue fixed cost burden or long-term inflexibility. As rating agencies emphasize adjusted leverage and long-range financial strategy, disciplined capital recycling that prioritizes ownership of mission-critical assets while monetizing non-core holdings has become an important consideration in alternative capitalization discussions.
As health systems move into 2026, access to capital remains ample. Markets remain open and a broad array of financing tools and structures are available to issuers across the credit spectrum. The challenge, however, has shifted from capital availability to capital selectivity. With balance sheets near cyclical highs and uncertainty on the horizon, organizations are increasingly focused on where and how capital is deployed rather than whether it can be raised. This places a premium on discipline, prioritization and a clear understanding of which investments meaningfully advance long-term strategy.
[1] Siddarth S and Akriti Shah, “J.P. Morgan Forecasts 2027 Rate Hike; Barclays, Goldman Postpone Rate Cut Calls,” Reuters, Jan. 12, 2026.
[2] LSEG Data & Analytics as of Feb. 26, 2026.
Senior Vice President
Bradley Dills is a Senior Vice President with Kaufman Hall’s Treasury & Capital Markets practice. He provides analytical, quantitative and strategic support, primarily for not-for-profit hospitals and health systems nationwide. Bradley previously served as a Vice President at Ponder & Co., where he was primarily responsible for quantitative analysis in structuring complex financing transactions while advising clients on credit and...
