Hospital and Health System Margins Remain Steady in May Despite Persistent Expense Pressures, According to New Strata Data
Consistent revenue growth helps offset rising drug and labor costs
CHICAGO – July 1, 2025 – Hospital and health system operating margins held steady in May, as more than two years of consistent growth in total revenues helped offset the impacts of ongoing expense increases, according to new data from Strata Decision Technology.
Health system operating margins hovered around 1% for a fifth consecutive month. The median year-to-date (YTD) operating margin for health systems nationally was 1.1%, essentially unchanged from April but up from 0.9% in March.
At the hospital level, operating margin trends showed minimal movement. The median change in hospital operating margin — which tracks percentage-point shifts in hospital margins over time — increased just 0.6 percentage point from May 2024 to May 2025 but declined 0.6 percentage point from April to May 2025.
"While organizations continue to face significant cost pressures, the consistent growth in both inpatient and outpatient revenue over the past two years is helping to stabilize financial performance," said Steve Wasson, chief data and intelligence officer at Strata Decision Technology. "Margins remain slim, but hospitals and health systems are showing resilience as their leaders manage through these persistent challenges."
Hospitals saw a 25th consecutive month of year-over-year (YOY) growth across gross operating, inpatient, and outpatient revenues. Outpatient revenue had the largest increase, rising 5.9% from May 2024 to May 2025. Inpatient revenue rose 4.8%, and gross operating revenue was up 5.3% over the same period. Bad debt and charity care increased for hospitals across all measures in May, jumping 8.1% YOY and rising 2.3% month over month.
At the same time, expenses remained on the rise across key hospital spending categories. Hospital drugs saw the most significant increase compared to 2024 levels, jumping 8.7% from May 2024 to May 2025 as organizations contend with higher costs. Other non-labor categories also rose, with supply expense up 5.2% and purchased service expense increasing 6.1%. In total, non-labor expense rose 5.1%, total labor expense increased 5.0% YOY, and total expense was up 5.1% over the same period.
Patient demand continued to show mixed results in May. Hospital emergency visits saw the biggest decrease in patient volumes — down 4.3% compared to the same time last year — a trend that could shift in the coming months as hospitals typically see emergency volumes increase in the summer. Meanwhile, inpatient and outpatient volumes both rose. Inpatient admissions increased 1.4% YOY nationally, while outpatient visits rose just 0.8%.
Looking at physician practice performance, the level of investment required to support practice operations continued to climb nationwide, driven by growing expenses. In May, the median annualized investment per physician full-time equivalent (FTE) was $332,512, up 4.7% compared to 2024. At the same time, per-physician expenses — measured as median total expense per physician FTE — was $1.1 million in May (annualized), marking a 7.6% increase compared to 2024.
About the Data
This report uses data from Comparative Analytics and Strata’s StrataSphere® database. Comparative Analytics offers access to near real-time data drawn from more than 135,000 physicians from over 10,000 practices and 139 specialty categories, and from 500+ unique departments across more than 1,600 hospitals. Comparative Analytics also provides data and comparisons specific to a single organization for visibility into how their market is evolving. StrataSphere is a unique and comprehensive data-sharing platform that helps providers leverage the power of a network that represents approximately 25% of all provider spend in U.S. healthcare. This report incorporates data from more than 650 hospitals from over 120 health systems with StrataJazz® Decision Support.
About Strata Decision Technology
Strata Decision Technology, LLC provides a cloud-based, enterprise performance platform for software, and data and service solutions to help organizations better analyze, plan, and perform in support of their missions. More than 2,300 organizations rely on Strata’s StrataJazz and Axiom solutions for financial analytics, planning, and performance management. Named the market leader for Business Decision Support for more than 15 consecutive years, Strata delivers first-class solutions and service, with an intense focus on accelerating innovation. For more information, please go to www.stratadecision.com.
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