When we dug into the data, we found that the pace of outpatient shift, when measured by share of revenue, is more dramatic for pediatric hospitals than their adult peers. Our benchmarking found that outpatient-generated revenue for pediatric hospitals increased eight percentage points from 44% of gross revenue in 2019 to 52% in 2025. For comparison, across the same period adult hospitals went from 64% to 67%. Pediatric hospitals, while starting from a lower baseline, increased their reliance on outpatient revenue at more than double the rate of their adult peers.

Analysis using our Market Scenario Planner, found the following service lines had the highest shift to outpatient when adjusting for the pediatric population:

• Endocrinology (31%): largely driven by the rising incidences of diabetes
• Physical therapy/rehab (17%): involving physio-therapy diagnostics and activity
• Psychiatry (15%): Driven by psychotherapy services

Of all the insights we shared in our pediatric roundtable, this observation resonated almost universally. And the strategic implication for pediatric hospitals tracks with their adult peers: Over time, the future of care delivery is outpatient. To accurately pace that shift, all hospitals, including pediatric ones, are going to have to conduct deeper data-driven analysis of sub-service line shifts.

From a financial standpoint, rising outpatient revenue means that every care interaction is generating less revenue than an inpatient one. And if we expect this trend to continue, and we do, pediatric hospitals can only rely on inpatient volume growth for so long.

Forward-thinking pediatric providers might be inclined to embrace the future, even in a moment of financial tightening. For those institutions, our recent research on ambulatory network design should hold true for pediatric hospitals. The core insight being that pediatric hospitals should be thinking about their ambulatory network strategy through the lens of capabilities instead of sites.

Using Advisory Board’s baseline OBBBA policy calculator, we adjusted the underlying assumptions to reflect the pediatric-specific dynamics. We used the same financial benchmarks for the pediatric cohort to establish median operating income of $11M for pediatric hospitals. We assumed a 55% Medicaid payer mix and median benchmarks on drug and supply spend. Lastly, to model the impact of administrative burden on children enrollment in Medicaid, we used a 6% drop rate as established in a 2023 National Bureau of Economic Research1 working paper on the subject.

We also include additional impacts related to reductions in funding for research grants (already in place in 2025) plus a 35% increase in drug acquisition costs related to the changes assumed to the 340B program.

We conclude that if all provisions of OBBBA go into effect, this simulated pediatric hospital will see its $11M income surplus drop to a $1.7M deficit in three years.

All caveats around extrapolating from median performance hold true here. And this analysis should be considered one of many inputs hospitals should be taking into consideration when planning. Additionally, this analysis excluded any pediatric-specific impacts from changes to coverage through the exchanges.

Into 2026, pediatric provider are likely to share their modeling with state and federal legislatures to find time and options to mitigate the worst of these impacts. Additionally, throughput and access improvement initiatives are key places to start as pediatric hospitals look to build their cash cushion.

For pediatric hospitals and their partners looking for financial sustainability, no single solution alone will make the difference. Instead, multiple approaches across both growth and cost management are key.

Our default is to ‘apply universal margin improvement practices to the pediatric setting’, but without accounting for structural and operational nuances of providing care for children and their families, we risk blunting our efforts with suboptimal applications.

In Advisory Board’s 2025 State of the Industry, we highlighted that health systems needed to manage two imperatives at the exact same time: Ensuring the immediate term capture and delivery of surgical volumes to shore up income while preparing for a future where elective care will be a smaller proportion of the volume you treat.

Pediatric hospitals face a similar two-speed problem but with a twist. In the immediate term they’re positioning to max out on commercially insured patient volumes, while preparing a long-standing demographic transition that comes from declining birth rates.

Put another way, pediatric hospitals need to be prepared for a future where there will be fewer pediatric patients.

Barring a reversal in birth rates or a rapid expansion in immigration, two core approaches are appropriate for this two-time horizon strategy:

• Accelerating on the patient flow, throughput, and referrals strategy ensures that pediatric providers are making the most of their existing capacity without overcommitting to inpatient capacity that may be obsolete for future need.
• Continuing to pace and harness the site-of-care shift in the pediatric space affords pediatric providers with the opportunity to smartly right-size their footprint for future demand.

The future of pediatric hospitals is multifaceted. There is continued need for care for the pediatric population, even as payment and demographic changes make the environment more challenging for pediatric hospitals. Advisory Board is committed to continuing to see you through the shifts.

¹ Arbogast I, Chorniy A, Currie J.Administrative Burdens and Child Medicaid Enrollments. NBER working paper series, September 2023.