Roughly 43% of U.S. hospitals are operating at a loss, up from about 33% before the COVID-19 pandemic, according to Kaufman Hall’s August 2026 “National Hospital Flash Report,” published Oct. 13.
The latest month of data shows the pressure is building, not easing.
The national median hospital operating margin, including allocations, fell to 1.8% in August from 3.8% in July and 5.6% in June. The calendar year-to-date median slipped to 2.5% from 3.8% a month earlier, according to the report, which draws on Strata Decision Technology data from more than 1,300 hospitals.
August was “notably weaker” for hospital performance than the prior four months, according to Kaufman Hall, which pointed to three converging forces: rising expenses, growing bad debt and charity care, and payer mix erosion.
One caveat frames the numbers. The medians include costs allocated to hospitals from corporate offices, physician enterprises and other entities. Without those allocations, the August median margin was 7.3% and the year-to-date median was 8%.
Here are four key reasons behind this trend and what hospital executives should be preparing for next year:
1. Costs reset higher, and the pressure moved to non-labor
Hospital expenses per calendar day are up 21% over three years, according to Kaufman Hall, comparing year-to-date 2026 with the same period in 2023. Labor expenses rose 16% in that span. Supplies rose 25%, drugs 29% and purchased services 20%.
Revenue has roughly kept pace in aggregate. Net operating revenue per calendar day is up 24% over the same three years, and both revenue and expenses are up 6% year to date compared with 2025. The trouble is that a median margin near 2% leaves little cushion, and the gains are not spread evenly across hospitals.
The mix of cost growth has also changed. Labor — the dominant cost story earlier in the decade — has leveled off by Kaufman Hall’s measures: labor expense per adjusted discharge is up 2% from 2023, and full-time equivalents per adjusted occupied bed are down 3%.
Non-labor costs are now where the pressure sits. Non-labor expense per adjusted discharge rose 6% year to date compared with 2025, with supply and drug expenses up 5% and 6%, respectively. Kaufman Hall called non-labor expenses “a major pain point” and said inflation in food and energy costs compounded the increases.
Supplies and drugs together account for more than 20% of total hospital spending, according to the American Hospital Association’s 2026 Environmental Scan. Hospitals pulled staffing levers to contain labor. Drug and supply prices are set largely upstream, which leaves supply chain contracting, utilization and formulary management as the main levers. Kaufman Hall pointed to those strategies as the way to blunt persistent expense growth.
2. More patients can’t pay, and fewer have coverage
Bad debt and charity care per calendar day rose 13% year over year in August and are up 49% over three years, according to Kaufman Hall. As a share of gross operating revenue, bad debt and charity care are up 7% year to date and 14% since 2023.
The spread between what hospitals bill and what they are paid is widening alongside it. Gross operating revenue per calendar day rose 9% year over year in August, while net operating revenue rose 6%. Kaufman Hall attributes the squeeze in part to payer mix erosion.
This is not a one-month spike. Kaufman Hall’s March data showed bad debt and charity care per calendar day up 18% year over year and 46% from the first quarter of 2023.
The most visible driver this year is the expiration of enhanced ACA premium tax credits at the end of 2025. Second-quarter earnings from the largest for-profit operators showed former exchange enrollees becoming uninsured patients at close to a 1-to-1 rate:
- Nashville, Tenn.-based HCA Healthcare said exchange volumes fell 15% year over year in the second quarter, with uninsured volumes up a corresponding 15%. It now expects the ACA changes to cost it up to $1.2 billion in 2026, up from an April estimate of $600 million to $900 million.
- Dallas-based Tenet Healthcare’s hospital segment saw exchange revenue fall 17% year over year in the second quarter.
- Franklin, Tenn.-based Community Health Systems raised its estimate of the 2026 adjusted EBITDA hit to $50 million to $75 million, from $20 million to $30 million.
The larger coverage shift has not yet arrived. HR 1 is projected to cut nearly $1 trillion from Medicaid over 10 years, and many of its eligibility changes, including work requirements and six-month redeterminations for the expansion population, begin rolling out in late 2026 and 2027. In other words, the bad debt hospitals are booking now arrived before most of those Medicaid changes take effect.
3. The strain is uneven by size, region and geography
The national median hides wide spreads. Kaufman Hall reports margin movement for each cohort as a percentage change in that group’s operating margin.
Hospitals with 500 or more beds saw operating margins fall 16.8% year over year in August. They are the only bed-size group whose year-to-date margins sit below 2023 levels, down 4%. Their drug costs climbed fastest: drug expense per adjusted discharge rose 21.9% year over year, and supply expense per adjusted discharge rose 11.2%.
At the other end, hospitals with 25 or fewer beds — the group that includes critical access hospitals — saw margins fall 5.7% year over year and 7.5% year to date.
Mid-sized community hospitals carry the heaviest uncompensated care growth. Bad debt and charity care per calendar day are up 64.2% since 2023 at hospitals with 100 to 199 beds and 61% at those with 200 to 299 beds, the steepest increases of any size group.
By region, August margins changed year over year as follows:
- Great Plains: -18%
- South: -2%
- West: 1%
- Midwest: 1%
- Northeast/Mid-Atlantic: 5%
The Great Plains is down 10% year to date, with drug expense per adjusted discharge up 21% and supply expense per adjusted discharge up 17% year over year. In the South, bad debt and charity care per calendar day jumped 24% year over year. In the Midwest, they are up 78% since 2023.
Rural hospitals face the sharpest version of these pressures. More than 40% of the roughly 1,800 U.S. rural hospitals have negative operating margins, according to an Oct. 13 report from the American Hospital Association. Medicare and Medicaid cover about 72% of rural discharges, and both pay below cost. The AHA estimates the expiration of ACA subsidies will cost rural hospitals $1.6 billion in revenue this year, and that HR 1’s Medicaid cuts put more than 300 rural hospitals at risk of closure, conversion or service reductions.
4. The economy is adding cost and raising the price of capital
The macro backdrop turned less forgiving in late summer. The producer price index rose 5.4% year over year in August, and diesel prices jumped 24.1% in the month, according to Kaufman Hall. Brent crude averaged $91 a barrel in August and topped $100 by Sept. 24, which the report said reinforces upside risks to transportation and supply costs for providers.
Capital is getting more expensive. The Federal Reserve raised the federal funds target range by 25 basis points to 3.75% to 4% in September, its first hike since July 2023. The 10-year Treasury yield reached 5.19% intraday on Sept. 24, its highest level since 2007, and the 30-year Treasury hit 5.48%, its highest since 2004.
The U.S. national debt also surpassed $40 trillion for the first time Aug. 19, adding another layer of financial uncertainty for hospitals already navigating elevated borrowing costs and significant reimbursement pressures.
Investment returns offers some relief on the balance sheet, according to the Kaufman Hall report. An illustrative 60/40 portfolio gained an estimated 1.8% in August and 13.7% year over year. Those gains strengthen days cash on hand and net income, but they do not touch operating margin, the measure behind the 43% figure.
Kaufman Hall expects the pressure to push hospitals in two directions. Inside the organization, rising bad debt, payer mix erosion and expense growth “may prompt hospitals to strengthen enterprise margin preservation efforts,” the report said. Across the market, continued pressure “may accelerate strategic repositioning and portfolio optimization efforts through partnerships.”
Becker’s 3rd Annual Fall Chief Pharmacy Officer Summit is the top tier event that the people leading the future of pharmacy convene. This 3-day event is built specifically for Chief Pharmacy Officers and senior pharmacy leaders. The sessions examine the workforce, financial and clinical priorities shaping pharmacy today. Becker’s is where candid discussions flourish and new ideas thrive. Becker's 3rd Annual Fall Chief Pharmacy Officer Summit
