Hospitals and health systems feeling margin pressures are not alone. Moody's recently predicted that not-for-profits health systems' operating cash flow will shrink by 2% to 4% over the next 18 months. Indeed, in an environment of rising costs and uncertain revenue growth, there are no shortage of reasons for flagging margins.

But although the cost and revenue challenges are industry wide, their exact impact can differ significantly from hospital to hospital. To define and implement an effective margin strategy, hospitals need to understand the root causes of their margin performance.