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Key Points
- PwC expects medical cost inflation to remain elevated, which strengthens the appeal of cost-reduction platforms like Hinge Health.
- Hinge’s MSK model is built to reduce therapy intensity and potentially avoid costly surgeries, supporting insurer adoption.
- Strong results are tempered by elevated stock-based compensation, though management expects SBC to normalize.
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The cost of healthcare in the United States is on the rise in a big way. In its 2026 healthcare outlook, the Big Four accounting firm PricewaterhouseCoopers (PwC) made strong statements confirming this reality.
“The US healthcare system is heading into another year of powerful inflationary forces exerting pressure, with few deflationary forces in sight.” PwC estimates that in 2024, group insurance medical costs rose by 8.5%. Prior to this, costs had not risen so quickly since 2012. PwC says costs rose by 8.5% again in 2025 and sees another year of 8.5% growth in 2026.
In this context, Hinge Health (NYSE: HNGE), a mid-cap healthcare stock, becomes an interesting option. Hinge’s business model centers on reducing healthcare costs, and some of the industry's biggest players are listening. Let’s break down this fast-growing firm and assess its outlook after an impressive earnings report.
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Understanding HNGE: Lowering Musculoskeletal Costs in Healthcare
Hinge Health’s business focuses specifically on one part of the healthcare industry: physical therapy. Its virtual musculoskeletal (MSK) therapy platform creates personalized physical therapy programs that patients can perform at home. Patients access these exercises through a mobile app, combined with wearable devices, artificial intelligence coaching, and human teams.
Hinge notes that in 2024, its platform reduced the number of human hours needed to support patients compared to physical therapy by around 95%. Reducing human hours puts downward pressure on costs, a key reason that healthcare providers choose to work with Hinge.
However, when it comes to MSK conditions, the biggest cost driver is surgeries. Hinge argues that its platform can reduce the risk that patients eventually need surgery through consistent intervention and reduced friction. Patients may find it easier to use Hinge’s app at home, rather than needing to schedule and travel to in-person therapy appointments. By getting patients to perform exercises more often, the risk that they will eventually need surgery falls, saving insurers money.
One study examined nearly 7,000 patients, half of whom used Hinge, and the other half received traditional care. Researchers found that the incidence of spinal fusion surgeries among patients using Hinge was 56% lower than that of the other group.
Insurers are taking notice, with Hinge now working with over 2,800 self-insured corporations. This includes 45% of Fortune 500 companies. Hinge is also integrated with the U.S.’s five largest healthcare plans, including UnitedHealth Group (NYSE: UNH) and the three largest pharmacy benefit managers. This makes it much easier for new companies to join the platform.
Hinge Soars After Latest Earnings Report, But SBC Is Elevated
In its latest quarter, Hinge reported revenue of $171 million, an increase of 46%. Adjusted earnings per share (EPS) rose by 23% to 49 cents. Both of these figures handily exceeded estimates, helping shares spike by 17%. Looking into 2026, the company projects full-year revenue growth of 25%. This would be a huge deceleration from the company’s full-year 2025 growth rate of 51%. Still, it expects the adjusted operating margin to rise from 20% to 21%. Hinge’s free cash flow in 2025 rose astronomically to $180 million, a 300% increase compared to 2024.
However, one massive caveat clouds this figure: Hinge’s stock-based compensation (SBC). SBC is a way to pay employees, but it is a non-cash expense. Had the company not paid its employees with stock, it would have had to pay them in cash. Thus, large SBC payments distort free cash flow. Overall, Hinge’s SBC expense was $643 million, more than three times the free cash flow it generated.
But, in a positive sign, Hinge says that SBC should be much smaller going forward. It projects that over the next four to eight quarters, SBC will average around $20 million to $25 million per quarter.
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HNGE: An Intriguing AI Play on Healthcare
The MarketBeat consensus price target on Hinge Health sits near $57, implying around 35% upside in shares. Targets updated after the company’s earnings are moderately lower, averaging around $55. Still, this figure suggests that Hinge could see a very considerable 31% gain.
Hinge Health has an interesting business model that is clearly gaining traction among insurers. When it comes to potential artificial intelligence displacement, Hinge also has a defense. The firm has a significant amount of proprietary data that it uses to improve its product. Patients generate this data when they perform Hinge’s workouts and interact with its AI assistant. With much of this data based on actual patient movement, it is not easily replicable.
The stock isn’t overly expensive, trading at a forward price-to-earnings ratio near 21x. Overall, there are several reasons to believe that Hinge stock could be an attractive opportunity. Still, with a market capitalization of less than $4 billion and markets shrouded in software skepticism, Hinge could face substantial volatility.
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