U.S. Health System Operating Margins Hold at 1.0% in August as Non-Labor Expenses Continue to Climb
Chicago, IL – October 1, 2025 – Operating margins for U.S. health systems remained narrow in August, holding at a national median of 1.0% despite steady revenue growth, according to new data from Strata Decision Technology. While up slightly from 0.9% in July, the median health system operating margin remains largely unchanged from levels seen throughout 2025 to date.
The findings, drawn from data on more than 135,000 physicians and over 1,850 hospitals nationwide, highlight the mounting pressure that expense growth continues to place on healthcare organizations across the country.
“While hospitals and health systems continue to see steady revenue growth, persistent expense pressures — especially from non-labor expenses — are keeping margins tight,” said Steve Wasson, Strata’s Chief Data and Intelligence Officer. “The latest benchmarks underscore the sector’s ongoing struggle to maintain financial stability and the need for healthcare leaders to remain innovative and vigilant in building efficiencies to ensure long-term sustainability for their organizations.”
Total non-labor expense rose 5.7% year over year (YOY) for hospitals nationally, outpacing the 4.6% increase in total labor expense, with supplies and purchased services driving much of the growth. Combined, total hospital expense increased 5.6% from August 2024 to August 2025.
Patient demand varied across care settings. Inpatient admissions grew 2.4% compared to last year and outpatient visits rose 1.1%, while observation and emergency visits declined. By region, hospitals in the Northeast had the biggest increase in inpatient admissions at a 5.2% increase in inpatient admissions, while those in the Midwest saw the strongest outpatient growth at 2.8% YOY. Service line performance showed stronger momentum, with ophthalmology volumes up 12.8% YOY and genetics up 11.2%.
Gross revenues continued their upward trend for the 28th consecutive month. Gross operating revenue rose 5.7% YOY in August, with outpatient revenue climbing 6.3% compared to a 4.3% increase in inpatient revenue. Regional results reinforced the strength of outpatient growth, with the West leading at 8.0%, followed by 6.4% in the South, 5.6% in the Northeast, and 5.0% in the Midwest. However, total gross revenue fell slightly from July to August, driven by month-over-month declines in both inpatient and outpatient activity. At the same time, hospitals faced a rise in uncompensated care. Bad debt and charity care deductions increased 6.4% from August 2024 to August 2025, adding further margin pressures.
Physician practices also experienced significant expense increases. Median annualized expenses per physician FTE reached $1.1 million in August, up 5.8 % from 2024 and more than 15% compared to 2023. Practices in the Midwest reported the steepest increases, while those in the West were the only ones to see expenses decline YOY.
Strata Decision Technology provides cloud-based financial planning, analytics, and performance tools that help healthcare providers drive better outcomes and stronger financial performance. Serving more than 2,300 hospitals and 500,000 healthcare providers nationwide, Strata is committed to empowering organizations with actionable data to improve healthcare delivery.
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 1,850 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 an innovative, cloud-based platform for software, and data and service solutions to help healthcare organizations acquire insights, accelerate decisions, and enhance performance in support of their missions. More than 2,300 organizations rely on Strata’s StrataJazz and Axiom solutions for market-leading service and enterprise performance management software, data, and intelligence solutions. To learn more about Strata and why the company has been named the market leader for Business Decision Support for more than 15 consecutive years, please go to www.stratadecision.com.
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