Health System Operating Margins Edge Back Above Zero in March as Revenue Gains Help Offset Expense Pressures
Chicago, IL — April 30, 2026 — U.S. hospitals and health systems reported modest financial improvements in March as operating margins inched upward, but ongoing expense pressures limited progress, according to new data from Strata Decision Technology.
Health system operating margins returned to positive territory after starting 2026 with two consecutive months in the red. The median year-to-date (YTD) health system operating margin reached 0.4% in March, up from negative 0.3% in February and negative 0.6% in January.
“The nation’s hospitals and health systems saw incremental improvements to close the first quarter, but we have yet to see a meaningful shift in overall financial performance,” said Steve Wasson, Chief Data and Intelligence Officer at Strata Decision Technology. “Higher patient demand contributed to revenue gains across both inpatient and outpatient care, but operating margins remain fragile as organizations continue to contend with rising expenses and increases in uncompensated care.”
Hospitals faced elevated expenses across multiple categories, especially related to supply and other non-labor expenses. Total hospital expense increased 7.1% year over year (YOY) in March. Growth in non-labor expenses outpaced labor-related spending, with total non-labor expense rising 9.7% YOY compared to a 4.0% increase in total labor expense. Supply expense increased 10.3% YOY, while drug expense rose 8.6% and purchased service expense increased 7.7%, driving overall non-labor cost growth.
Hospitals also experienced ongoing growth in uncompensated care. Bad debt and charity care increased 17.0% YOY and 4.1% from February to March, reflecting continued financial strain tied to coverage gaps, patient affordability challenges, and evolving policy dynamics in 2026.
Revenue growth remained strong, particularly in outpatient settings. Outpatient revenue increased 11.8% YOY, outpacing inpatient revenue growth of 6.6%. Gross operating revenue rose 9.4% YOY and increased 10.4% from February to March.
Patient demand was up in March following declines across most metrics in February. Outpatient volumes continued to grow faster than inpatient admissions on a YOY basis, with outpatient visits rising 7.3% compared to a 3.1% increase in inpatient admissions. Emergency department visits saw more limited growth, increasing 0.3% YOY.
Physician practices saw growth across several performance metrics in the first quarter, though rising expenses drove the need for higher levels of financial support. Per-physician practice expenses reached nearly $1.3 million, while median investment per physician full-time equivalent rose to $391,974, reflecting increased support required to sustain practice operations.
These findings are drawn from Strata Decision Technology’s latest Monthly Healthcare Industry Financial Benchmarks report.
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 1,900 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. 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 provides an innovative, cloud-based platform for software, and data and service solutions to help organizations acquire insights, accelerate decisions, and enhance performance in support of their missions. More than 2,300 organizations rely on Strata for market-leading service and enterprise performance management software, data, and intelligence solutions. For more information, please visit www.stratadecision.com.
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