Hospital margins improve as outpatient revenue accelerates, but costs loom

Editor's Note

Hospital operating margins rose in June as outpatient revenue growth fueled stronger financial performance, though rising bad debt and non-labor expenses continue to pressure stability, according to Kaufman Hall’s latest National Hospital Flash Report. HealthLeaders August 18 covered the findings.

As detailed in the article, the median year-to-date operating margin climbed to 3% in June, up from 2.4% in May. Monthly margins also improved, reaching 3.7% compared with 1.6% the month prior. Revenue trends supported the gains, with net operating revenue per calendar day increasing 1% from May and 9% year-over-year. Outpatient services were the clear growth driver, with revenue per calendar day rising 12% compared to June 2024.

According to the report, high-performing hospitals are adapting quickly by expanding outpatient footprints, diversifying services, centralizing functions to manage costs, and leaning into value-based or bundled care arrangements. These strategies appear to be helping organizations strengthen margins even as expenses climb.

Rising bad debt is a growing concern, however. Bad debt and charity care per calendar day rose 4% from May, a rate outpacing earlier months. Kaufman Hall suggested insurance enrollment changes, including shifts in Medicaid, may be contributing to the trend. Analysts cautioned that further growth in uncompensated care could offset margin gains from higher revenue.

Non-labor expenses also continued to grow, with overall increases of 3% month-to-month on a per adjusted discharge basis. Supply costs climbed 3%, and purchased services were up 4% in the same period. These mounting expenses highlight the importance of balancing revenue diversification with disciplined cost control.

The article concludes that while hospitals are benefiting from stronger outpatient performance, sustainable financial health will depend on simultaneously addressing rising costs and bad debt pressures.