Hospital and health system operating margins remained steady at around 1% for the fifth consecutive month in May, according to the latest health care industry financial benchmarks report from Strata Decision Technology.
The South saw the largest increase in the metric at 3.6 percentage points, followed by the Northeast with a 1.3 percentage point gain. The West and Midwest experienced slight declines, with decreases of 0.6 and 0.4 percentage points, respectively. Hospitals with 300 to 499 beds recorded the largest increase in median change in operating margin at 2.6%. By contrast, the nation’s largest hospitals (more than 500 beds) saw a decrease of 2.6 percentage points, and the smallest hospitals (0 to 25 beds) experienced the largest decline at 3.3 percentage points.
Meanwhile, overall expenses continued to increase for hospitals nationwide:
- Drugs saw the largest expense increases compared to the previous year. From May 2024 to May 2025, total drugs expenses jumped 8.7%, contributing to a 5.1% year-over-year increase in total non-labor expense.
- Other non-labor categories also saw increases, including a 5.2% rise in supply expenses and a 6.1% increase in purchased service expense.
- Total labor expenses increased 5% year over year, and total expense rose 5.1% over the same period.
Regional trends showed the highest drug and non-labor expense growth for hospitals in the South, where drug costs rose 9.1% and total non-labor expenses were up 6.2% year over year. Drug expenses also increased for hospitals in the Northeast (9%), the Midwest (7.3%) and the West (5%). For total non-labor expense, hospitals in the West saw a 5.5% rise, followed by a 4.4% increase in the Midwest and a 3% increase in the Northeast.
Overall hospital revenues continued to rise year over year for a 25th consecutive month across gross operating, inpatient and outpatient categories. Outpatient revenue saw the largest increase, rising 5.9% from May 2024 to May 2025. Inpatient revenue rose 4.8%, and gross outpatient revenue was up 5.3% over the same period. Month-over-month trends were mixed. Outpatient revenue declined 1.3% from April to May 2025, while inpatient revenue rose 0.6%. Gross operating revenue decreased slightly, down 0.6%.
Revenue metrics also showed year-over-year growth after adjusting for patient volumes. Net patient service revenue per adjusted discharge increased 2.5%, and revenue per adjusted patient day rose 3.6% year over year. However, both metrics declined month over month. Bad debt and charity care increased for hospitals across all measures in May, jumping 8.1% year over year and rising 2.3% month over month.
Finally, the level of investment required to support physician practice operations continued to climb nationwide, driven by growing expenses. In May (annualized), the median investment per physician full-time equivalent was $332,512. This marked a 4.7% increase compared to 2024 and a 19.2% increase compared to 2023.
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