Median health system margins dropped slightly from 1% in January and February to 0.9% in March, according to Strata Decision Technology data. Individual hospitals fared better.
“We’ve seen some encouraging growth in hospital operating margins throughout the first quarter, but health system margins shifted in the wrong direction in March,” said Steve Wasson, chief data and intelligence officer at Strata. “The continued growth in non-labor expenses is particularly concerning heading into the second quarter, as many healthcare leaders brace for the impacts of tariffs, which are expected to drive up the costs of drugs and supplies even more.”
Strata gathered data from around 1,600 hospitals in its StrataSphere database and Comparative Analytics to measure month over month trends. Five key findings:
- Many health systems reported average margins dipped below 1% for the first time in about 15 months. The last time year-to-date average health system margins dropped that low was December 2023.
- Median hospital margins increased 2.1 percentage points year over year in March, marking the fourth consecutive quarter of growth. Hospitals in the Northeast saw the biggest margin jump, increasing 3.1 percentage points, and hospitals with 300 to 499 beds reported a 3.3 percentage point increase.
- The lowest hospital margin growth was at hospitals in the Midwest with a 1.5 percentage point increase and hospitals with 25 or fewer beds, which had a 1.2 percentage point increase.
- Non-labor expenses jumped 9.1% year over year in March while labor expenses were up 5.6%. The non-labor expenses with the biggest increases were:
- Drug expenses: 11.4%
- Supply expenses: 10.8%
- Purchased services: 9.5%
- Hospital revenues grew overall in March, with gross outpatient revenue increasing 10% year over year. Inpatient revenue was up 9.6%. Net patient service revenue per adjusted discharge jumped nearly 5% year over year.
