Hospitals still financially fragile
Kaufman Hall data cited by MedCity News shows hospital costs are rising faster than revenue, leaving margins squeezed and buyer scrutiny high. That dynamic pushes health systems to weigh capital commitments and favour flexible, low‑fixed‑cost options for capacity expansion. (medcitynews.com)
U.S. hospitals entered 2026 with margins still too thin to absorb another cost spike. (medcitynews.com) Kaufman Hall said year-to-date hospital operating margins reached 1.9% in February 2026, up from 1.0% in January but still far below the 3.7% margin hospitals posted at the end of 2025. The firm’s monthly report draws on data from more than 1,300 hospitals. (medcitynews.com; kaufmanhall.com) Revenue rose, but costs rose just as fast or faster. MedCity News reported that daily net operating revenue increased 5% from January and 4% from a year earlier in February, while expenses also rose 5% month over month and 6% year over year. (medcitynews.com) Kaufman Hall said the pressure is coming from two directions at once: elevated expenses and a weaker payer mix, meaning a larger share of patients covered by lower-paying public programs or no coverage at all. The firm also said hospital performance is “bifurcating,” with wider gaps by size, geography and market position. (kaufmanhall.com; medcitynews.com) That split shows up in where care is delivered. Kaufman Hall said outpatient revenue is rising in early 2026 while patient days have softened, and Erik Swanson of Kaufman Hall told MedCity News that hospitals with stronger outpatient revenue and more commercially insured patients are outperforming peers. (kaufmanhall.com; medcitynews.com) The cost side has not eased. The American Hospital Association said workforce spending accounted for about 60% of hospital expenses in 2025, labor costs rose 5.6%, supply costs rose 9.9%, and drug costs rose 13.6%. (aha.org) The hospital lobby’s broader argument is that the case mix is getting heavier as easier cases move out of the hospital. The American Hospital Association said advances in medicine have shifted more routine care to outpatient settings, leaving hospitals with sicker inpatients who need more specialized staffing, equipment and around-the-clock capacity. (aha.org) Hospitals also say payment friction is adding costs that do not show up at the bedside. The American Hospital Association said hospitals spent $43 billion in 2025 trying to collect payments already owed by insurers, including costs tied to prior authorization, claims denials and repeated documentation requests. (aha.org) Kaufman Hall’s February report did not frame the answer as a single fix. It described a sector with softer volumes, higher non-labor costs, and margins that remain “below sustainable levels,” which is why executives are scrutinizing new spending and favoring capacity moves that do not lock in large fixed costs. (kaufmanhall.com; medcitynews.com)
