Hospital margins drop to 1.4% as bad debt, charity care soar

 Hospital margins softened in July as bad debt and charity care rose significantly, indicating payer mix erosion, according to Kaufman Hall’s “National Hospital Flash Report.”

“As pressure from these trends mounts, hospitals may need to redesign their financial and operational strategies for future sustainability,” noted the report, which was generated based on data from 1,300-plus hospitals gathered by Strata Decision Technology.

Five key takeaways:

1. Hospital year-to-date operating margins fell from 2.2% in June to 1.4% in July, marking the lowest rate since February. The monthly operating margin index similarly declined, dropping from 4.7% in June to 1.1% in July.

2. Nationally, operating margins dropped 8 percentage points month over month and 3 percentage points year to date. Despite the decline, margins remain 10 percentage points higher than they were in 2023. The regional breakdown is:

• West: -16 percentage points
• Midwest: -2 percentage points
• South: -3 percentage points
• Northeast / Mid-Atlantic: -1 percentage points
• Great Plains: -15 percentage points

3. Net operating revenue per calendar day rose 8% year over year in July, driven by a 7% increase in inpatient revenue and a 9% increase in outpatient revenue.

4. Bad debt and charity care has surged nearly 50% since 2023 and even on a year-over-year basis, costs climbed 14%. As a share of gross operating revenue, bad debt and charity care increased 7% year to date compared with the same period last year. Regional year-to-date compared to 2025 breakdown is:

• West: 15%
• Midwest: 21%
• South: 16%
• Northeast / Mid-Atlantic: 7%
• Great Plains: 16%

5. Total expenses per calendar day rose 7% year over year in July. Drug expenses led the increases, climbing 9%, while supply expenses jumped 7%. Labor expenses increased 5% year over year.

https://www.beckershospitalreview.com/finance/hospital-margins-drop-to-1-4-as-bad-debt-charity-care-soar/