Germany’s hospital reform enters its next phase: what operators, investors and lenders need to know

What you need to know

• Germany's hospital reform is in full swing and has entered its implementation phase. This requires hospitals to adapt, and it opens opportunities for investors.
• The financing of Germany's Transformation Fund – established to provide government support for hospitals undergoing reforms - shifts further towards the federal level, which may unlock additional co-funding for restructuring and investment projects.
• Service groups (Leistungsgruppen), a new system of 65 distinct medical care categories that determine hospital planning, specialization, and funding, are being standardised nationwide with clearer minimum requirements, though the timing of implementation in each federal state remains a key variable.
• The roll-out of the new financing logic of the hospital reform act is more gradual, giving hospitals a longer window to adjust their portfolios, cost structures and cooperation models.
• Buyers, lenders and operators should reassess service-line strategy, due diligence approach and covenant structures in light of the new planning and funding logic.

Background

Germany’s hospital reform is entering its implementation phase. The 2026 Hospital Reform Adjustment Act (Krankenhausreformanpassungsgesetz – KHAG), which came into force earlier this year, builds on the original 2024 Hospital Care Improvement Act (Krankenhausversorgungsverbesserungsgesetz – KHVVG) and readjusts key elements of this reform, particularly around feasibility, timing, transformation funding and safeguards for regional care.

Following a personnel reshuffle, new Federal Minister of Health Carsten Linnemann has taken office in summer 2026. He is expected to stay the course and continue implementing the hospital reform.

For hospital operators, investors and lenders, the reform is no longer a purely regulatory matter. It is becoming a portfolio, financing and transaction issue. The allocation of service groups, access to transformation funding and the role of regional hospital planning will increasingly determine which service lines and sites can be expanded, combined, restructured or divested.

Transformation Fund re-design

The basic architecture of the KHVVG remains intact. However, the re‑design of Germany's Transformation Fund – EUR 50 billion available in subsidies to support hospital reform efforts – may be a notable change for market participants: A greater share of its financing shifts from the statutory health insurance to the federal level (tapping into Germany's Special Fund for Infrastructure and Climate Neutrality). This may provide more financial flexibility in particular for university hospitals and providers with a pivotal regional function.

In practice, this shift means two things: First, restructuring and investment projects may be more likely to be co‑funded than under the original concept. Second, funding decisions may become even more tightly linked to regional planning and quality‑driven service profiles. Therefore, it is expected that strategic projects such as mergers, joint ventures, and/or portfolio consolidation will increasingly need to be structured to meet both funding requirements and planning criteria.

Service groups move toward a nationwide standard

On the planning side, on the back of the former North Rhine-Westphalia pilot model, the KHAG refines the system of the newly introduced service groups (Leistungsgruppen) and moves it closer to a nationwide standard. The number and design of service groups are to be streamlined and harmonised, with clearer minimum requirements and fewer inconsistencies. In practice, this may also mean a notable change for market participants as service groups become more manageable with significantly less room for interpretation and ambiguity.

A key uncertainty remains implementation at state level. While the federal framework is now set, the commercial impact for individual hospitals will depend heavily on how and when the federal states assign service groups and reflect the new framework in their hospital plans. Some states have already done so, others are in the middle of assessments, some have only just started.

This creates a period of uncertainty, but also a window for strategic repositioning, cooperation models and early engagement with planning authorities. Aligning transactions with the new service-group logic and regional care concepts is currently challenging in practice, as hospitals in many states are still waiting to be assigned service groups by the state regulators.

For hospital operators and investors, this raises the bar: Whether a hospital can bill for particular services will depend more directly on meeting defined structural, staffing and volume criteria. This creates both risk, such as the loss of service lines, and opportunity, such as the possibility of upgrading sites to regional competence centres.

Timing and transition

Another focus of the KHAG is timing and transition. The KHAG envisages a later and, therefore, more gradual roll‑out of the new service groups based financing logic. In practice, this means that hospitals have more time to adjust and to adapt their cost structures and cooperation models accordingly. This time may be used to make strategic decisions in a more considered manner with more sophisticated service‑line carve‑outs, network agreements, joint ventures, public‑private partnerships and acquisitions. At the other end of the spectrum, closure and downsizing scenarios will be driven by how quickly the respective federal states implement service groups into their hospital plans.

Overall, these latest adjustments do not change the direction of travel set by the reform, but rather its speed and risk profile. The reform is still expected to drive consolidation and specialisation in the German hospital market. At the same time, extended timelines, stronger transformation funding and clearer planning criteria give operators and investors more room to reposition their portfolios and to structure transactions in a legally secure way.

What this means for market participants

Market participants should consider the following steps:

• Review which services are strategically critical and which sites may be at risk of failing to meet the requirements for needed service groups.
• Assess where cooperation, carve-outs or consolidation could help preserve access to funding and remuneration.
• Reflect the new planning and service-group logic in due diligence, transaction structuring, financing documentation and covenant packages, in particular if state planning processes are still ongoing and service groups have not yet been assigned.
• Prepare for contentious proceedings over service group allocation decisions, revenue downturns and loss of services, and build appropriate safeguards into the transaction documentation.
• Adapt financing, security and covenant structures to a remuneration system with a larger structural component and a smaller case-based share.

Want to know more?

• Germany’s Infrastructure Moment: Where government funding meets private capital, March 06, 2026, Germany’s Infrastructure Moment: Where government funding meets private capital

Authors: Sascha Arnold, Partner; Jan Krekeler, Partner and Matthias Wiedenfels, Consultant.