Kaufman Hall’s recent “National Hospital Flash Report” found the gap between high- and low-performing hospitals has continued to widen this year, despite a steady overall financial performance for nonprofit hospitals.
The report, which secured data from 1,300 hospitals across the U.S., found nonprofit hospital adjusted year-to-date operating margins in September were 2.9%, a slight increase from August. However, the average margins ranged from -1.8% in the bottom quartile to 14.7% in the top quartile.
“As we start to see this widening gap, when you look within the hospitals of that cohort … it tends to be those who are performing well that are pulling away from the pack, more so than an even distribution of some getting better, some getting worse,” Erik Swanson, managing director and data and analytics group leader, Kaufman Hall, told Becker’s. “It tends to be those who are already performing well, performing even better. Those who are doing poorly or who are doing okay, have tended to stagnate rather than having the bottom necessarily fall out, but that is sort of the general dynamic that we see.”
Mr. Swanson pointed to outpatient revenue as one of the largest drivers, with organizations that generate more revenue from outpatient settings typically outperforming those with larger shares of inpatient revenue. Essentially, organizations that have figured out how to successfully provide outpatient care settings in a costly manner are performing better than those who have not.
“Those that have greater amounts of revenue coming from diagnostic imaging, outpatient ambulatory surgery centers, retail pharmacies, to some degree, we tend to find outperform those that don’t have those types of services,” he said.
Mr. Swanson said organizations with lower total expenses on a volume-adjusted basis also are outperforming those that do not. He noted a stronger payer mix and efforts in managing labor, vendor, drug and supply costs as helpful, with hospitals that serve aging or high-acuity populations often underperforming compared to facilities with healthier populations. Uncompensated care growth can also be a challenge for hospitals.
Hospitals with post-acute relationships also tend to outperform facilities that do not because they can reduce length of stay. For smaller, more rural hospitals, without size and scale and an aging population, this can be a challenge. However, Mr. Swanson said it’s not universally true that size correlates to performance.
“For organizations that are underperforming, they have to ask themselves existential questions, if they can remain independent,” he said. “In some instances they cannot. Very often it’s those who are seeking to expand their portfolio who will look to purchase those assets.”
He also pointed to rural labor and delivery closures, which can often reflect broader financial performances for hospitals. Becker’s has reported on 28 maternity service closures so far in 2025.
“This is not a new story, but labor and delivery, this is one of these areas where, particularly for small organizations, either the number of births that they have per month and day are low and don’t necessarily meet those thresholds for what one might consider to have really high-quality outcomes,” he said. “They tend to not be profitable services. You do see organizations having to consider what services they offer. Women’s health in rural areas is one of those areas that unfortunately tends to be the recipient of some of these larger trends that cause [shutdowns].”
On the plus side, Mr. Swanson pointed to benefits of scale, with larger organizations often being able to more effectively provide shared services at a lower cost.
Looking toward the future, Mr. Swanson expects the gap between high- and low-performing hospitals to stabilize.
“With the hospital operating margins being in the black, although slim margins, we are finding that some organizations have done better,” he said. “Those that have emerged through the last few years have gotten themselves a more stable footing. I expect the gap to remain the same.”
Leadership can also be a successful tool to help organizations improve overall.
“There’s not a single magic bullet here,” he said. “What separates organizations that are doing really well versus those that are not is a constellation of factors, but one is the executive team having shared vision and goals … they’re able to make some of those tough decisions and navigate what they’re hoping [for an] outcome, and being strategic in how their culture builds upon that, as opposed to allowing it to occur organically.”
