Hospitals’ operating margins continued to soften through July as volumes remained strong, but spending on supplies and drugs inched upward, according to Kaufman Hall’s latest monthly performance report.
The firm’s operating margin index of nationwide hospitals was a median 1.7% across seven months when including health system allocations for the cost of shared services and 5.3% when excluding those. That’s a low point for 2025 but still above hospitals’ performance during the same period in 2024.
Looking at July alone, the index showed a 2.6% median operating margin with health system allocations and 6.2% without. In June, those were 3.4% and 7%, respectively.
“While performance has generally been strong this year, profitability has decreased slightly over the past few months,” Erik Swanson, managing director and data and analytics group leader with Kaufman Hall, said in a release.
“Bad debt and charity care also continue to rise. In addition, operating margins for health systems are about one percent lower than hospital margins. This points to potential challenges for hospitals and health systems to weather future uncertainty.”
Hospitals’ daily net operating revenues were flat from June to July but were 8% higher in July on a year-over-year basis, according to the report. Daily inpatient revenue increased by 2% month over month and 7% year over year, while outpatient revenue rose 3% month over month and 12% year over year.
Net patient service revenue per adjusted discharge fell 2% month to month and was 3% higher from July 2024. This was matched by a 1% monthly and 3% year-over-year dip in average length of stay, together suggesting somewhat reduced acuity.
Though daily bad debt and charity care dipped by 1% from June to July, it’s still 10% higher year to date in 2025 than in 2024, triggering the firm’s concern of persistent elevated burden.
Daily discharges were 1% higher month to month and up 4% year over year, with adjusted discharges up 2% and 6% by the same measures. ED visits were up 1% both monthly and from the prior year, while daily operating room minutes rose 2% monthly and 3% year over year.
Hospitals’ total daily expenses were roughly flat from June to July but are up 7% from the prior year. Labor expenses stayed level from the prior month but are 5% higher than the previous year. Nonlabor expenses were down 1% from June, reflecting a split between a 5% improvement on purchased services but 3% increases in both supply and drug expenses. Year over year, nonlabor expense is up 9%, purchased services 7%, supply expense 12% and drug expense 12%.
Taken together, the advisory firm said the solid-but-slipping margins and “uncertain future outlook” have many hospitals “taking steps to build long-term resiliency.” Expense increases and concerns over revenue cuts tied to the summer’s One Big Beautiful Bill Act have been directly cited by several hospitals and health systems that have launched reorganizations and layoffs in recent months.
Kaufman Hall, which is owned by healthcare data and improvement company Vizient, releases monthly reports built on operating data from 1,300 nationwide hospitals as collected by Strata Decision Technology.