Financial Performance Gap Widens Between Top and Bottom Hospitals, Report Finds
By Jeff Lagasse, Editor | November 13, 2025
Hospital operating margins held steady in September, but a new report reveals a growing disparity between financially strong hospitals and those struggling to break even. According to Kaufman Hall’s latest Hospital Flash Report, the adjusted year-to-date operating margin across hospitals was 2.9%, showing a slight improvement from the previous month. However, this aggregate figure masks significant performance differences among providers.
Stark Contrast in Hospital Margins
The report highlights that hospitals in the top quartile achieved a robust operating margin of 14.7%, while those in the bottom quartile experienced a negative margin of -1.8%. Erik Swanson, managing director and data and analytics group leader at Kaufman Hall, noted, “The gap between strong performers versus struggling hospitals continues to widen." He added that although patient volumes are on the rise, margins remain flat overall, underscoring the challenge hospitals face in managing increased demand without corresponding financial gains.
Growing Demand Puts Pressure on Hospital Throughput
According to the report, the demand for emergency department services and inpatient care is expected to continue increasing. As a result, hospitals’ ability to manage patient throughput efficiently will become increasingly vital to financial sustainability and operational effectiveness.
Medical Group Investment Plateaus Post-Pandemic
For the first time since the onset of the COVID-19 pandemic, the median investment—or subsidy—medical groups make per provider has leveled off. The third quarter of 2025 saw a median subsidy of $237,911 per provider, compared to $239,338 in the second quarter. These subsidies represent the net patient service revenue minus total expenses, divided by provider full-time equivalents (FTEs). Despite the recent plateau, subsidies have generally trended upward over recent years, ranging widely from $141,371 at the lower end up to $325,634 at the higher end in Q3. Matthew Bates, managing director and physician enterprise service line leader at Kaufman Hall, explained that “this trend is likely driven by higher performing practices that are better able to manage costs and grow revenue.” He emphasized that significant performance differences between medical practices prove that strategic labor cost containment is achievable.
Labor and Drug Costs Remain Key Financial Pressures
Labor expenses continue to dominate hospital budgets, making up 84.2% of total expenses, according to the data. Additionally, the workforce is increasingly composed of advanced practice providers (APPs), reflecting a steady shift across both primary care and specialties.
Drug costs remain another major pressure point. Hospitals reported sustained increases in pharmaceutical expenses in September, largely attributed to greater use of advanced and often more costly medications.
Broader Trends: Rising Expenses and Elevated Bad Debt
The latest findings echo trends from Kaufman Hall’s September flash report, which indicated that although patient volumes and revenues are increasing, so are bad debt and charity care levels. Expense growth continues to outpace revenue growth, driven particularly by non-labor costs. Supplies expenses rose by 26% compared to 2022, while drug costs increased by 31% during the same period.
Conclusion
As hospitals navigate the post-pandemic landscape, financial performance disparities continue to widen, challenging providers with thinner margins and higher operational costs. Strategic management of patient flow, labor forces, and pharmaceutical expenditures will remain key to bridging this performance gap.
Jeff Lagasse is editor of Healthcare Finance News.
Healthcare Finance News is a HIMSS Media publication.