Hospital and health system margins are beginning to reveal two different realities as a growing number of hospitals lose money and cut costs while the strongest add services, shed what doesn’t fit and post gains.
The gap, highlighted in recent Becker’s coverage, shows struggling facilities like Watsonville (Calif.) Community Hospital that are down to just eight days of cash on hand, while systems like Durham, N.C.-based Duke University Health System reported an operating income of $453.1 million (5.4% margin) in fiscal year 2026, up from an operating income of $179 million (2.5% margin) in fiscal 2025.
Here are the numbers and moves defining the hospital finance divide as hospitals head into 2027.
The national picture
1. More hospitals are losing money. A Kaufman Hall “National Hospital Flash Report” from Oct. 13 found that 43% of hospitals are operating in the red, up from 33% prior to the COVID-19 pandemic. The report pulled from August 2026 financial performance data from 1,300 hospitals.
2. Margins slid through the summer. The average hospital margin fell to 1.8% in August, down from 3.8% in July and 5.6% in June.
3. Geography matters. In August, hospital margins were down 2 percentage points compared with the same month in 2025. Margins rose 5% year over year in the Northeast/Mid-Atlantic but fell 18% in the Great Plains.
4. Revenue is up, but costs and bad debt are increasing faster. Operating revenue per day increased 6% year over year in August. Total expenses have increased 21% over the last three years, with drug expenses up 29%, supply expenses up 25% and labor expenses up 16%. Bad debt and charity care per calendar day increased 13% year over year and 49% over the last three years.
Systems pulling ahead
5. For-profits remain ahead. Nashville, Tenn.-based HCA Healthcare, which is scheduled to report its third-quarter results Oct. 27, reported a net income of $1.7 billion (8.4% margin) in the second quarter of 2026, roughly flat compared with $1.7 billion (8.9% margin) in the second quarter last year. HCA, Dallas-based Tenet Healthcare and King of Prussia, Pa.-based Universal Health Services have also outpaced the broader market since June 30, even as they split their outlooks for the rest of the year.
6. Certain nonprofits are posting big margin gains. Duke Health’s operating margin for fiscal 2026 was 5.4%, compared with an operating margin of 2.5% for fiscal 2025. Livonia, Mich.-based Trinity Health also saw $281 million in operating income (1.1% margin) in fiscal 2026, up from a $12.2 million operating loss (0% margin) in fiscal 2025.
7. Turnarounds are working. West Reading, Pa.-based Tower Health achieved a positive operating income for the first time in nearly a decade. President and CEO Michael Stern told Becker’s the system is shifting from stabilization toward strategic investment and sustainable growth. St. Louis-based Ascension also completed a $3 billion turnaround in three years, with the system reporting a $120 million operating loss (-0.2% margin) in fiscal 2026, a $371 million improvement from the prior year.
8. System investments reach beyond hospitals. Phoenix-based Banner Health has bet on ASCs and insurance to grow. In 2018, the system entered a joint venture partnership with Phoenix-based Atlas Healthcare Partners to build and operate a network of ASCs in Arizona, Colorado and Wyoming. Additionally, just under 20% of Banner’s total revenue comes from insurance premiums, with its long-term financial strategy including an increase in that share. Ascension also just wrapped its $3.9 billion acquisition of AmSurg in June, growing its ASC footprint from 58 centers to more than 300 across 34 states.
The hospitals falling behind
9. Cash is the strongest divider. An Aug. 13 Moody’s Ratings report found that median days cash on hand was 280 for Aa-rated nonprofit systems, 191 for A-rated systems, 117 for Baa-rated systems and 71 for systems rated below Baa.
10. Some hospitals are down to days, not months, of cash. Watsonville Community Hospital faces “a serious financial gap” with just eight days of cash on hand. Its interim CEO Tim Moran warned the hospital could close within six to 12 months without action.
11. Downgrades are piling up. Becker’s has tracked 19 health system rating downgrades in its latest roundup. Most recently, Ashtabula, Ohio-based ACMC Healthcare System’s credit rating was downgraded to “BBB” from “BBB+” by Fitch. The downgrade reflected deterioration in the system’s liquidity since fiscal 2023.
12. Federal scrutiny has added pressure. An Oct. 8 inspection report obtained by Becker’s found Central Maine Medical Center in Lewiston is at risk of losing Medicare funding after CMS found it out of compliance with three of the program’s conditions of participation.
13. Rural hospital exposure remains high. More than 40% of rural hospitals operate at a loss, according to an Oct. 13 AHA report. Becker’s has reported on just six planned hospital and emergency department closures in 2026, but at this point in 2025, Becker’s had already reported on 22. While this may be viewed positively, many healthcare leaders feel the financial strain hasn’t eased and is showing up in areas like service line cuts and rural emergency hospital conversions and consolidations.
How systems are responding
14. Workforce cuts aren’t slowing down. Becker’s has reported on 68 hospitals and health systems that have announced job cuts in 2026. In recent months, four systems have also cut corporate and administrative support roles while protecting positions focused on patient care.
15. Portfolios are being reshaped. Many large systems are divesting assets, exiting joint ventures and calling off deals. At the same time, hospital and health system mergers and acquisitions in 2026 have already surpassed 2025 numbers, and are set to see their busiest year since the pandemic. Since 2020, at least 23 health systems have formed or taken new identities through mergers, new launches or rebrands.
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