Financial performance gap widens between top, bottom hospitals, report finds

Hospital operating margins remained stable in September, but performance is uneven due to a widening gap in financial performance between strong performers and providers that are struggling.

According to Kaufman Hall’s latest Hospital Flash Report, adjusted year-to-date operating margin was 2.9%, a slight increase over the previous month.

But the data shows that hospital performance is inconsistent, with margins ranging from 14.7% for hospitals in the top quartile to -1.8% for hospitals in the bottom quartile.

“The gap between strong performers versus struggling hospitals continues to widen,” said Erik Swanson, managing director and data and analytics group leader with Kaufman Hall. “Patient volumes are increasing while margins hold steady. Hospitals need to think about how to manage increased volumes despite flat margins.” 

There will be more demand for emergency departments and inpatient care, the report concluded, and the ability of hospitals to manage patient throughput will be increasingly important.

WHAT’S THE IMPACT 

For the first time since the COVID-19 pandemic, the median investment a medical group makes, or subsidy-per-provider, has plateaued, the report found.

Median investment/subsidy per provider was $237,911 in Q3 2025, a slight change from $239,338 in Q2 2025.

Investment/subsidies per provider represent net patient service revenue minus total expense. The figure is then divided by provider full-time equivalents, or FTEs. The investment/subsidies have been trending upwards over the last few years. In Q3 they ranged from $141,371 on the lower end to $325,634 on the higher end. 

Labor as a percentage of total expenses remains high, at 84.2%, the data showed.

“While the median subsidy last quarter held relatively flat, a closer look at the data shows that this trend is likely driven by higher performing practices that are better able to manage costs and grow revenue,” said Matthew Bates, managing director and physician enterprise service line leader with Kaufman Hall. “The differentiation between practice performance is significant, and demonstrates that it is possible to strategically contain labor costs.”

Advanced practice providers (APPs) also continue to grow as a proportion of the provider workforce. The data shows a consistent shift to APPs across primary care and specialties.

Meanwhile, analysts said drug expenses continued to put pressure on hospitals in September. Experts noted that increased use of more advanced pharmaceuticals, in part, are a contributing factor.

THE LARGER TREND 

The previous flash report, released in September, showed that hospital performance has softened in recent months. While patient volumes and revenues are trending upward, bad debt and charity care are also elevated.

Expense growth is outpacing revenue growth, with non-labor expenses  putting pressure on hospitals. Supplies are up 26% compared to 2022, and drugs costs are up 31% compared to 2022.