Hospitals entered 2026 facing a financial “new normal” marked by rising expenses, a shifting payer mix and persistent pressure on margins, according to Kaufman Hall’s latest “National Hospital Flash Report,” which is based on data from more than 1,300 hospitals.
Hospital operating margins remained stable in December, with Kaufman Hall reporting an adjusted year-to-date operating margin of 1.3% to close out 2025. While margins were stronger last year than in the immediate post-pandemic period, analysts argue that underlying trends point to ongoing financial strain.
Expenses increased across the board in 2025, while bad debt, uninsured patient volumes and charity care all rose. Hospitals also derived a greater share of revenue from government payers rather than commercial insurers, further compressing margins, according to the report.
“With some data suggesting a lingering ‘new normal’ for hospitals, healthcare organizations need to be very strategic about diversifying services and managing expenses to build financial stability,” Erik Swanson, managing director and data and analytics group leader at Kaufman Hall, said in a Feb. 10 news release. “Demand in outpatient services is on the rise, and hospitals without an outpatient footprint will struggle.”
Hospital performance largely settled into this “new normal” over the course of 2025, according to Kaufman Hall. Patient volumes continued to grow across service lines, but outpatient growth remains a defining trend. Analysts noted that as more routine care shifts to outpatient settings, hospitals are likely to see a higher proportion of high-acuity patients in inpatient settings, driving up the cost of care.
The report also highlighted a persistent gap between gross and net operating revenue. That imbalance — coupled with increases in bad debt and charity care — signals continued erosion in payer mix, with more government reimbursement and a larger uninsured population weighing on hospital finances.
As hospitals plan for 2026, Kaufman Hall analysts said the combination of rising costs, changing revenue sources and volume shifts will require sustained focus on expense management, service diversification and outpatient strategy to maintain financial stability.
Click here to access the Kaufman Hall hospital report.
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