Hospital margins hit 12-month low

According to Strata's latest Monthly Healthcare Industry Financial Benchmarks report, hospital margins hit a 12-month low in January, dropping to -0.6%. In 2025, hospital margins generally stayed above 1%, even reaching 1.5% in November. 

Hospital margins were likely affected by declining patient volume, with inpatient admissions decreasing by 2.4% and outpatient visits decreasing by 2.5% year over year. There was also a significant decline in ED visits, dropping by 11.2% over the last year. However, certain specialties reported an increase in patient volume:

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

According to AHA, "[h]opsitals are not only paying more to provide care, they also are delivering more care to patients who are sicker and more medically complex." A recent AHA/Vizient analysis found that hospital case-mix index, which measures how sick patients are, increased by roughly 5% between 2019 and 2024. This suggests that a larger share of hospital care is now focused on higher-acuity patients who have greater clinical needs and longer stays.

Hospitals struggle with rising expenses

In its latest Costs of Caring report, the American Hospital Association (AHA) further highlights the financial strain hospitals are facing, particularly with rising expenses.

Labor costs continue to be hospitals' top expense, making up 60% of all hospital spending. In 2025, hospitals spent over $1 trillion on labor expenses. Costs for supplies also remain high, making up 18% of all hospital expenses.

In 2025, hospital expenses increased by 7.5%, over twice the rate of growth for hospital prices during the same period. Every major category of expenses increased, with drug expenses growing the most at 13.6%.

Based on AHA annual survey data, from 2019 to 2024, around 36% of hospital cost growth was due to treating more patients, 19% was due to higher-acuity patients and their needs, and 45% was due to higher costs per patient stay, including from rising labor, supplies, and drug costs.

Hospitals are also facing higher administrative costs related to commercial insurance requirements, which add growing complexity to the delivery and payment of care. In 2025, hospitals spent an estimated $43 billion trying to collect payments for care that had already been delivered, including $18 billion overturning denied claims.

"Rising costs for labor, supplies, drugs, and administrative burdens caused by corporate insurers, combined with caring for sicker patients, have created challenges for hospitals and health systems," said AHA president and CEO Rick Pollack. "These strains are jeopardizing hospitals' ability to provide around-the-clock care and services that patients and communities need."

Commentary

Wyld recommends healthcare leaders target three areas to improve their margin performance: workforce optimization, supply chain, and revenue cycle management. Some key strategies to help improve margins include reducing premium labor, leveraging AI-driven analytics, aligning staffing to demands, and optimizing care team models.

Strategic sourcing of supplies can also help reduce expenses, while stronger clinical documentation education and engagement with clinicians can rightsize documentation and coding accuracy and improve margins. As cost pressures rise, many organizations are also investing in provider education partnerships in lieu of adding permanent headcount.

Overall, "[t]hese shifts in mindset and strategic partnerships that yield bottom line impact are going to become even more critical as margin pressure intensifies in 2026," Wyld said.