Margins Remain Narrow as U.S. Hospitals Face Intensifying Expense Pressures and Growing Performance Gaps
Chicago, IL — December 3, 2025 — Hospital and health system operating margins remain thin, signaling ongoing financial pressures across the healthcare sector. New national data reveal widening disparities in financial performance metrics between large and small health systems, accelerating non-labor expense growth, and shifting care patterns that are reshaping the operating landscape, according to two new reports from Strata Decision Technology.
Numerous factors reflect continued operational strain on U.S. healthcare organizations. Median health system operating margins have held near 1% throughout 2025. Hospitals treating the most complex patients continue to experience the steepest drug expense increases. Smaller and rural hospitals face deepening losses in essential services like obstetrics, and sizable shifts in outpatient volumes reflect the growing impact of sustained migration of care to lower-acuity settings.
“As expenses continue to climb and margins remain relatively stagnant, many organizations are running out of room to maneuver,” said Steve Wasson, Strata’s Chief Data & Intelligence Officer. “The widening performance gap between large and small systems, the potential erosion of access to critical services like maternity care, and the structural imbalances in academic research programs all point to an urgent need for reliable data and predictive analytics as leaders work to navigate these pressures and prepare for what comes next.”
Performance gaps grow, margins remain narrow
Analysis in the Q3 Strata Performance Trends report shows significant variations in operating performance:
- The largest systems posted the most stable results, with 7.1% YOY revenue growth for the first three quarters of 2025.
- Smaller systems recorded declines in operating revenues and margins, highlighting increasing financial vulnerability.
Pressures persisted heading into Q4. In October, median health system operating margins rose to 1.2%, the highest level of the year but still narrow, according to Strata’s latest Monthly Healthcare Industry Financial Benchmarks. Hospitals saw minimal margin movement, with the median change in operating margin increasing just 0.2 percentage point year over year. Physician practices mirrored these pressures, with the annualized median total expense per physician rising to $1.1 million (up 6.2% YOY) and required investment per physician FTE reaching $312,050.
Non-Labor expenses continue to see outsized growth
Across both quarterly and monthly datasets, hospitals saw steep increases in non-labor expenses, particularly for pharmaceuticals and supplies. Drug expenses rose 21.6% YOY at academic medical centers at the end of Q3 and 8.4% YOY for hospitals overall in the latest monthly benchmarks. Supply expenses grew 9.2% YOY in October, with even higher spikes in some regions. These increases continued to limit organizations’ ability to convert rising patient demand into meaningful margin gains.
Access risks deepen, especially for obstetrics and research programs
Nationwide, inpatient obstetrics margins worsened. Small hospitals with 0–25 beds saw losses reach $6,714 per case, more than double those seen the prior year. Rural facilities also saw average losses deepen to $4,934 per case, posing growing risks to maternity access in underserved regions.
Academic medical centers faced additional strain as research gross operating revenue fell 1.9% for January to September versus the same period in 2024, while expenses rose 7.8% and staffing increased 5.3%. The imbalance stems in part from early-year federal grant cancellations, leaving AMCs with cost commitments that now outpace available funding.
Care patterns shift as outpatient growth continues
Strata data also show notable changes in how and where patients receive care. Outpatient visits rose 9.8% YOY in September and 2.8% YOY in October, while outpatient revenue growth continued to outpace inpatient revenue increases across all regions. Bariatric surgery patterns shifted sharply: outpatient procedures increased 78% since early 2024, while total bariatric surgical volume fell 38%, due in part to growing GLP-1 use.
About the Data
This report uses data from Strata’s StrataSphere® and Comparative Analytics 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 1,900 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.
About Strata Decision Technology
Strata Decision Technology provides a cloud-based platform for software and service solutions to help organizations better analyze, plan, and perform in support of their missions. With the combination of Syntellis Performance Solutions’ Axiom solutions, more than 2,300 organizations rely on Strata to provide their financial analytics, planning, and performance solutions. Strata has been named the market leader for Business Decision Support for 18 consecutive years. By uniting these two industry leaders, Strata continues to deliver market-leading solutions and world-class service, with an increased focus on accelerating innovation. For more information, please go to www.stratadecision.com.
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