Health System Operating Margins Rebound to 0.4% in May Amid Shift in Patient Demand Patterns

Chicago, IL — July 21, 2026 — U.S. hospitals and health systems reported modest improvements in May as operating margins recovered to levels not seen since March, though diverging patient volume trends signal emerging challenges, according to new data from Strata Decision Technology.

Health system operating margins bounced back to 0.4% in May, returning to March's level after a slight dip in April, though performance remains significantly below May 2025's 1.1%. The modest rebound was tempered by a notable shift in patient demand patterns, with outpatient volumes experiencing a sharp contraction even as inpatient admissions stabilized.

“The sharp decline in outpatient volumes in May is a notable signal, but stable inpatient admissions and continued year-over-year revenue growth point to a more mixed performance picture,” said Alina Henderson, Vice President for Healthcare Solutions and Partnerships at Strata Decision Technology. “For CFOs, the question is what those patterns mean in terms of service-line performance. Putting volume and revenue trends alongside forecasts and cost data can help leaders identify which service lines warrant growth investment and where margin improvement should take priority.”

Key Performance Trends in May:

Outpatient volumes experienced a dramatic reversal in May, declining 8.4% month-over-month and 1.8% year-over-year, a sharp departure from recent trends. In contrast, inpatient admissions showed relative stability, growing 2.4% year-over-year and 0.8% month-over-month. Emergency department visits declined 1.2% month-over-month and 2.6% year-over-year.

Revenue growth remained solid on a year-over-year basis, with gross operating revenue rising 5.9% and outpatient revenue growth continuing to exceed inpatient at 6.1% versus 5.7%. However, month-over-month trends showed weakness, with total gross operating revenue declining 2.6% and outpatient revenue down 4.5%.

Non-labor expenses remain the primary cost driver, rising 6.2% year-over-year despite a 2.1% month-over-month decline. Supply expense growth of 4% and drug expense growth of 3.3% year-over-year continue to pressure margins. Labor costs showed relative stability, increasing 3.9% annually.

Physician practices faced continued pressure, with per-physician expenses growing 3.6% year-over-year. Investment levels per physician FTE accelerated to 7.36% year-over-year growth, reflecting increased health system support, while net patient services revenue per FTE increased only 1.42% year-over-year. 

These findings are drawn from Strata Decision Technology’s latest Monthly Healthcare Industry Financial Benchmarks report.

About the Data

This report uses data from Strata’s Comparative Analytics solution and StrataSphere database. Comparative Analytics offers access to near real-time data drawn from more than 149,000 providers from over 15,000 practices and 139 specialty categories, and from 500+ unique departments across more than 2,200 hospitals. StrataSphere is a comprehensive data-sharing platform representing 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. 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. Strata delivers market-leading solutions and world-class service, with an increased focus on accelerating innovation. For more information, please visit www.stratadecision.com.

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Media contact:
Stephanie Fergione, Inkhouse
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