Hospitals have more uninsured patients or those covered by government programs with higher volumes not translating into stronger financial results.
U.S. hospital financial performance stabilized in 2025, but underlying revenue and payer-mix pressures continue to weigh on long-term sustainability, according to Kaufman Hall’s latest National Hospital Flash Report.
The report, produced using recurring monthly data from more than 1,300 hospitals tracked by Strata Decision Technology, describes 2025 as a “new normal” for hospital operations—marked by modestly improved margins compared with prior years, but growing structural challenges tied to patient mix and reimbursement.
Patient volumes continued to rise across service lines during the year, with outpatient care remaining a key driver of growth. At the same time, hospitals are treating a greater share of higher-acuity patients, a shift that is increasing costs of care and placing additional pressure on operating expenses.
While margins in 2025 were stronger than in prior years, the report indicates hospitals will need to be more deliberate about diversifying services and managing expenses to sustain performance.
A central financial concern highlighted in the report is the persistent gap between gross and net operating revenue. That imbalance, combined with rising bad debt and charity care, points to continued deterioration in payer mix.
The findings suggest hospitals are seeing a higher proportion of patients covered by government programs and a growing number of uninsured patients, reducing the share of billed charges that ultimately convert into revenue.
The report also underscores that higher patient volumes are not translating directly into stronger financial results, particularly as a larger portion of care involves complex, high-cost cases.
Erik Swanson, a managing director leading Kaufman Hall’s data and analytics group, told Healthcare Finance News that although average margins have stabilized since the pandemic, the gap between the “haves” and “have nots” remains stark, and the latter group typically feels the larger effects of challenging macro-economic trends.
“Additionally, at the median, operating margins still remain tenuous and may not be at levels for adequate reinvestment,” he said.
Swanson said for hospital and health system financial leaders, developing a strategic point of view on the long-term financial sustainability of their organizations and executing accordingly, is imperative in 2026.
He pointed out higher performing hospitals are nimbler on managing both revenue and expenses.
They may be expanding their outpatient footprint, diversifying services, carefully managing their total portfolio of services, or managing expenses like purchased services by centralizing some functions.
“They are also more likely to have value-based care or bundled care arrangements in place,” he explained.
And while hospitals can’t influence external forces like the rising costs of raw materials or the uncertainty in global trade, they can explore strategies to contain these costs.
“Financial leaders should also identify and prioritize the service lines that are critical to their organization’s mission and margin,” Swanson advised.
Finally, he said it’s important to take a system-wide portfolio approach to service lines that leverages emerging ambulatory and outpatient platforms.
“Portfolio challenges can also be met creatively through different types of partnership models whereby the strengths of either party or parties are leveraged for better financial and patient outcomes,” Swanson said.
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