The financial performance of hospitals nationwide took a hit at the start of the new year as volumes stumbled, labor costs jumped and bad debt continued to accumulate, according to Kaufman Hall.
The latest monthly benchmark from the healthcare advisory firm, based on data from more than 1,300 hospitals collected by Strata Decision Technology, outlined a January operating margin index of 2.1% (including health system allocations for the cost of shared services).
In December, the sector’s operating margin index was 4.9%, but 2.9% when looking across the full 2025 calendar year.
Hospitals’ daily discharges were flat from month to month, but adjusted discharges (which include outpatient activity) fell by 3%. ED visits per calendar day fell by 4%, operating room minutes per day dropped by 5% and the average length of stay rose 4%.
“This decline could be due to postponing of elective procedures around the holidays, as well as a change in payer mix,” according to the report, with the latter factor stemming from upheaval in the Affordable Care Act exchanges.
As a result, daily net operating revenue dropped by 5% from month to month, as did daily gross operating revenue by 2%. Daily inpatient revenue was up by 3% while outpatient revenue dropped 4%. Net patient service revenue per adjusted discharge and per adjusted patient day fell, respectively, by 2% and 4%.
Meanwhile, total daily expenses dipped just 1% from December to January. Non-labor daily expenses declined by 3%, yet daily labor spend rose by 3% despite the limited volumes. On an adjusted-discharge basis, these translated into a 1% month-over-month total increase, no change in non-labor expense and a 5% rise in labor expense.
Landing alongside those performances was a persistent uptick in uncompensated care, according to the report. Bad debt and charity accrued per calendar day was flat from an also-elevated December, and now sits 8% higher than January 2025. Bad debt and charity as a percentage of hospitals’ gross rose by 2% from December, and is up 4% from the prior year.
“Increased expenses, especially in labor, and the persistent increase in bad debt and charity care are not likely to ease this year,” Erik Swanson, managing director and data and analytics group leader at Kaufman Hall, said of the monthly numbers. “Overall structural costs are poised to go up.”
Looking at year-over-year changes (January 2025 to January 2026), Kaufman Hall’s report broadly outlined declines in hospital volumes and average length of stay; increases in total and, to a lesser extent, per adjusted discharge revenues; and greater rises in total and per adjusted discharge expenses, with non-labor expense increases a particular standout.
“Hospitals will need to be strategic about where to allocate resources and how to manage spending in what could be a challenging economic environment,” Swanson said.