Hospital margins take a dive

Hospitals and health systems had a rocky start to 2026. Patient demand and revenue growth slowed while expenses intensified, leading to an operating margins dip, according to Strata’s Monthly Healthcare Industry Financial Benchmarks report.

The firm gathered data from more than 1,900 hospitals across the U.S. and identified financial and operational trends in the month of January. Below are five big trends for hospital and health system executives to know, based averages gathered by Strata.

1. Margins hit 12-month low. Health system margins dropped to -0.6% from 1.3% in December, which was the biggest monthly decline over the last year. For most of last year, health system operating margins hovered above 1% and even reached 1.5% in November.

Hospital margins also dropped 3.1 percentage points month over month and 2.4 percentage points year over year. Hospitals in the Northeast and South regions of the country had the smallest decline, about 1.2 percentage points, while Midwestern hospitals reported a 3.2 percentage point margin drop.

2. Smallest and largest hospitals are under the most financial pressure. Hospitals with less than 100 beds reported a 3.9 percentage point margin drop while hospitals with 500-plus beds reported a 2.5 percentage point decrease. Hospitals in between reported less steep declines.

3. Expense growth outpaced revenue. Total expenses increased 5.4% year over year in January while gross operating revenue rose 3.9%, leaving a significant gap for many organizations. Outpatient revenue jumped 4.4% while inpatient revenue increased a more moderate 2.5%.

4. Non-labor and drug costs surged. Non-labor expenses drove expense growth, at 6.4%. Labor expenses increased an average of 4.9% year over year and drug expenses were up 6.8%. Supply expenses increased just 4.6% in January.

5. Overall patient volume declined but select specialties are booming. Patient demand slowed, as inpatient admissions dropped 2.4% year over year and outpatient visits were down 2.5%. Emergency visits had the largest decline at 11.2% compared to the same period last year. Several specialties posted strong gains despite overall volume loss:

• Ophthalmology: 17.5%
• Genetics: 12.8%
• Hematology: 12.2%
• Cancer: 10.6%
• Pulmonology: 2.4%

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