Hospital finances pace below 2025 despite slight improvements in margins and expenses

CHICAGO - May 18, 2026 - After a tenuous start to 2026, hospitals saw slight month-over-month improvements in operating margin and expenses in March, according to the latest National Hospital Flash Report, from Kaufman Hall, a Vizient company. Kaufman Hall's adjusted 2026 year-to-date operating margin closed out March at 1.7%, up from 1.3% in February.

Notably, month-over month discharges rose while patient days fell, highlighting hospitals' efforts to improve length of stay and continued shifts to outpatient care settings. Despite positive signals, analysts note the industry continues to face lower operating margins, an overall upward trend of higher bad debt and charity care, and higher drug expenses compared to 2025.

"Hospitals continue to see the effects of payor mix erosion and cost pressures," said Erik Swanson, Managing Director and Data and Analytics Group Leader at Kaufman Hall. "Proactive steps to strategically allocate resources and manage spend, through areas such as length of stay, outpatient care and growing expenses, will continue to be key."

Provider productivity rises as labor costs dominate physician enterprise expense

Kaufman Hall's latest quarterly Physician Flash Report shows provider productivity continues to rise, with provider work relative value units per full-time employee increasing 3% year-over-year, indicating higher demand for care across physician enterprises.

In addition, the Q1 report provides further insight into labor expense, with new metrics for provider, support staff, and non-labor expense as a percent of total expense, respectively.

Labor expense accounts for 84.6% of total expense. Provider expense, which encompasses physicians and advanced practice providers (APPs), represents 71% of total expense. With APPs now 40% of the workforce, strategic care team design can increase value, maximize effectiveness and meet rising patient demand.

Support staff expense comprises a comparatively small share of overall expense at 13.6%. At the same time, support staff play an important role in supporting provider productivity and care delivery, reinforcing the value of strategically designed staffing models that optimize team effectiveness.

"Physician practices have a significant opportunity to evaluate and evolve care team models to better align with the current landscape," said Matthew Bates, Managing Director and Physician Enterprise Service Line Leader at Kaufman Hall. "When care teams are designed strategically, they can increase access, boost productivity, improve margin and promote overall system and practice effectiveness."

Kaufman Hall's National Hospital Flash Report draws on data from more than 1,300 hospitals from Strata Decision Technology, LLC. The Physician Flash Report draws on data based on more than 200,000 providers, also from Strata.

About Kaufman Hall, a Vizient Company

Kaufman Hall, a Vizient company, provides management consulting solutions to help society's foundational institutions realize sustained success amid changing market conditions. Since 1985, Kaufman Hall has been a trusted advisor to boards and executive management teams, helping them incorporate proven methods, rigorous analytics, and industry-leading solutions into their strategic planning and financial management processes, with a focus on achieving their most challenging goals.

Kaufman Hall services use a rigorous, disciplined, and structured approach that is based on the principles of corporate finance. The breadth and integration of Kaufman Hall advisory services are unparalleled, encompassing strategy; financial and capital planning; performance improvement; treasury and capital markets management; mergers, acquisitions, partnerships, and joint ventures; and real estate.

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