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Gus Iversen, Editor in Chief | February 11, 2026
Hospital operating margins remained steady at the end of 2025, according to Kaufman Hall’s latest National Hospital Flash Report, though the consulting firm cautioned that rising expenses and a shift in payer mix could strain finances going forward.
The year closed with an adjusted median operating margin of 1.3%, based on data from more than 1,300 hospitals. While average margins improved compared to recent years, analysts pointed to several pressure points, including increases in bad debt, charity care, and a higher share of revenue from public payers that may signal a persistent “new normal” for the industry.
“With some data suggesting a lingering ‘new normal’ for hospitals, healthcare organizations need to be very strategic about diversifying services and managing expenses to build financial stability,” said Erik Swanson, managing director at Kaufman Hall.
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Outpatient volumes are continuing to climb, and facilities without a strong ambulatory footprint may face competitive disadvantages, Swanson added.
Kaufman Hall also released its quarterly Physician Flash Report, which highlights further economic pressures in the provider workforce. Productivity, measured in work RVUs per full-time employee, rose 7% since 2023, but provider compensation only increased by 6% in the same period. Meanwhile, net patient revenue per wRVU declined 1%, continuing a trend of lagging reimbursement.
The median investment needed to support a physician practice grew to $315,358 in the fourth quarter of 2025; a 4% increase from 2023. Labor remained the dominant cost driver, accounting for 84.4% of total expenses.
“The amount of downstream revenue that a provider needs to generate to cover a practice’s investment is increasingly unsustainable in this current financial environment,” said Matthew Bates, managing director at Kaufman Hall. “Providers are working more but are being paid less for their work. Patient demand is up, yet reimbursement is falling.”
Based on current margins and investment levels, Kaufman Hall estimates that a provider would need to generate $17 million in downstream revenue to offset the median subsidy.
Both reports draw on data provided by Strata Decision Technology.
