Most U.S. health systems are still operating in the red, even as a handful of standouts post stronger numbers to start the year.
While some systems, including large for-profit operators and nonprofits like Clearwater, Fla.-based BayCare and Rochester, Minn.-based Mayo Clinic, reported margin spikes to begin 2026, the broader picture tells a different story. According to Strata Decision Technologies, which gathered data from more than 1,900 hospitals to track financial performance, the average year-to-date operating margin ticked up only slightly, from -0.6% in January to -0.3% in February.
“While margins showed modest improvement in February, the underlying pressures facing healthcare leaders remain significant,” said Steve Wasson, chief data and intelligence officer at Strata Decision Technology. “Sustained expense growth and uneven patient demand are contributing to a challenging environment, reinforcing the need for healthcare leaders to better anticipate future performance and ensure their organizations thoughtfully manage expenses and align resources and care delivery with changing utilization patterns.”
Hospital operating margins were essentially flat for the first two months of 2026, but dropped 1.3 percentage points year over year in February. The pain wasn’t evenly distributed — smaller hospitals absorbed the biggest hits, while larger systems largely held their ground. Among hospitals with 500 or more beds, margins actually grew 0.5 percentage points. At the other end of the spectrum, hospitals with 26 to 99 beds saw the steepest decline, dropping 3.5 percentage points year over year.
The full breakdown by bed size, according to Strata’s data:
- 0-25 beds: 2.3 percentage point drop
- 26-99 beds: 3.5 percentage point drop
- 100–199 beds: 1.1 percentage point drop
- 200–299 beds: 0.2 percentage point growth
- 300–499 beds: 1.3 percentage points drop
- 500 beds or more: 0.5 percentage point growth
On the revenue side, hospital gross operating revenue jumped 6% year over year, with outpatient revenue leading the way at 7.2% growth. But expenses kept pace — rising 5.7% overall, driven largely by a 7.6% surge in supply and drug costs. Labor expenses were a relative bright spot, growing just 4% year over year in February. Contract labor as a share of total labor expenses remained relatively flat, and overtime hours as a percentage of productive hours dipped 7.4% year over year.
At the Becker's 11th Annual IT + Revenue Cycle Conference: The Future of AI & Digital Health, taking place September 14–17 in Chicago, healthcare executives and digital leaders from across the country will come together to explore how AI, interoperability, cybersecurity, and revenue cycle innovation are transforming care delivery, strengthening financial performance, and driving the next era of digital health. Apply for complimentary registration now.
