Hospital margins slide to 2.6% average, profitability declines: 6 notes
Hospital finances continued to show signs of strain in July, with national operating margins slipping from recent highs and profitability pressures mounting.
Nationally, average margins are still up year over year for nonprofit hospitals, but digging deeper into operating revenue and expenses shows challenges.
“While performance has generally been strong this year, profitability has decreased slightly over the past few months,” said Erik Swanson, managing director and group leader of data and analytics for Kaufman Hall. “Bad debt and charity care also continue to rise. In addition, operating margins for health systems are about 1% lower than hospital margins. This points to potential challenges for hospitals and health systems to weather future uncertainty.”
Six things to know:
1. Hospital operating margins hit 2.6% on average nationally in July, down from 3.4% in June, the highest it’s been since last December. The median margins fluctuated considerably in the last 12 months, hitting a low in November at 0.3%.
2. Median calendar year-to-date margins have steadily declined from 3.3% in January to 1.7% in July. However, they are still ahead of the full-year average of 1.4% in 2024.
3. Profitability is slipping as well, with expense revenue and expense growth flat month over month. Revenue for the first seven months of 2025 was up 8% year over year, while expenses grew 7%. Expense growth was driven by a 9% increase in non-labor expenses year over year. Here is the expense breakdown:
- Labor expenses per calendar day: 5%
- Supply expenses per calendar day: 12%
- Drug expenses per calendar day: 12%
- Purchased services per calendar day: 7%
4. Operating margin performance varied for hospitals across the U.S., with the average margins decreasing in some regions. Here is the breakdown for median operating margin, net operating revenue and total expenses year-to-date in 2025 compared to 2024:
West:
- Median operating margin: 9%
- Net operating revenue per calendar day growing 9%
- Total expenses per calendar day increased 8%.
Midwest
- Median operating margin: 15%
- Net operating revenue per calendar day: 8%
- Total expenses per calendar day: 6%
South
- Median operating margin growth: 21%
- Net operating revenue per calendar day: 11%
- Total expenses per calendar day: 7%
Northeast / Mid-Atlantic
- Median operating revenue: -6%
- Net operating revenue per calendar day: 6%
- Total expenses per calendar day: 6%
Great Plains:
- Median operating margin: -7%
- Net operating revenue per calendar day: 7%
- Total expenses per calendar day: 6%
5. Critical access hospitals with 25 beds or fewer reported a -1.7% margin decline year to date while hospitals slightly bigger, 26-99 beds, reported a 9.5% margin growth. Hospitals with 100-199 beds reported 27.6% average operating margin increases while hospitals with 200-299 beds reported nearly 4% average operating margin growth.
6. Hospitals with 500-plus beds reported a steep -22.6% average year to date operating margin drop driven by increasing supply and drug expenses, which grew faster than operating revenue.
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