Why is healthcare spending declining in 2026?

Health care and life sciences organizations cut their spending commitments 2.8% from February to June 2026, according to the third-quarter Business Spend Index released Oct. 8 by Coupa, a business spend management software company. Health care was the only one of the five sectors in the index to pull back.

The other four sectors, high technology, manufacturing, business services and financial services, held steady or grew an average of 2.2% over the same period. That came despite a stretch the report describes as six months of tariff volatility, an oil price shock and a 13.2% correction in the Nasdaq.

According to the report, the health care decline was concentrated in April and May, and spending stayed flat in June. By May, the sector had reached its lowest reading in the 12 months the index covered, from June 2025 to June 2026.

The pullback also ran against the broader economy. Citing Bureau of Economic Analysis figures, the report noted that GDP grew 2.1% in the first quarter and 1.5% in the second. The ISM manufacturing index stayed in expansion territory every month.

Costs and uncertainty converge

The report attributes the divergence to pressures specific to health care. These include rising operating costs, changes in insurance coverage and uncertainty about the pace of federal research funding.

Hospitals in particular are working with thin margins. The report cites American Hospital Association data showing hospital supply expenses rose 9.9% in 2025 and drug expenses rose 13.6%.

The report argues these pressures affect purchasing differently than a change in import costs would. A hospital facing a tighter revenue outlook may delay an equipment purchase. A research organization may hold off on committing to a project until its funding is confirmed.

Payment decisions still pending

The report points to several unresolved policy decisions that could shape health care budgets in the coming months.

The first is the CMS proposed 2027 Medicare Physician Fee Schedule, which has not been finalized. As proposed, the rule would cut the conversion factor 1.68% for physicians outside advanced alternative payment models and 1.19% for those participating in one. The cuts largely reflect the expiration of a one-year 2.5% increase Congress approved for 2026. The final rule is expected in November, and Medical Economics has detailed the key changes in the proposed rule.

The report also notes that the Provider Reimbursement Stability Act of 2026, a separate bill on physician payment, has cleared a House committee but has not become law. In addition, the National Institutes of Health has confirmed its fiscal 2026 funding, but its notice does not say when individual awards will be made.

Coupa analysts said the flat June reading could be either a floor or a pause before further declines. Insurance renewal season runs through the second half of the year, which is when much of the sector's contracted spending reprices. The company said its fourth-quarter index will show whether spending held at the lower level.

How the index works

The Business Spend Index is built from purchase orders approved, contracts signed and renewals executed by thousands of businesses on Coupa's platform. Each commitment is recorded when it is made. Results are aggregated at the sector level, and no individual company, supplier or transaction is identified.

Coupa describes the index as a measure of spending decisions already made, in contrast with GDP estimates, which are published and revised after a quarter closes, and survey-based measures such as the ISM index.

The report also notes that the index tends to move slowly. Organizations generally keep paying on multiyear contracts even when their outlook worsens, because exiting a contract costs more than continuing it. Discretionary purchases, by contrast, are where cutbacks typically show up first. The report argues that a sustained decline in a sector's line therefore signals a real change in spending behavior.

The broader squeeze on physician practices

The index tracks enterprise purchasing rather than individual practices, but its findings align with the cost pressures physician groups have reported throughout 2026.

Practices have contended with higher labor, supply and technology costs for several consecutive years, while Medicare payment rates have fallen in real terms. The recurring cycle of proposed fee schedule cuts followed by temporary congressional fixes has made multiyear budgeting difficult for many groups. Industry groups representing practices have pressed Congress for inflation indexing of Medicare physician payment and for changes to budget neutrality rules. Medical Economics has covered the case for those changes and the year-end fight in Congress.

For many organizations, the result is more caution about capital spending. Equipment upgrades, technology investments and expansion plans are increasingly tied to how payment policy is resolved. Leaders are also looking more closely at discretionary spending, renegotiating vendor contracts and consolidating purchasing where they can.

How long that caution lasts may depend on decisions due before year's end: the final 2027 fee schedule, any congressional action on physician payment and the outcome of insurance renewals.