After a tough start to the year, hospital operations gained steam in March as providers chopped down stay length and, as a result, their expenses.
According to Kaufman Hall’s latest monthly benchmark data, which is based on data from more than 1,300 hospitals collected by Strata Decision Technology, the sector’s single-month operating margin index rose from February’s 1.8% to 2.9% in March (inclusive of health system allocations for the cost of shared services).
The improvement brings hospitals’ calendar year-to-date operating margin to 1.7%. That’s still below the 3.5% margin recorded across 2025, reflecting the tough first quarter that has borne out in health systems’ earnings filings.
Volumes and efficiency were the driving forces behind March’s numbers, the firm wrote in its report. From February, hospitals’ daily discharges dipped 1% while adjusted discharges remained flat—however, average length of stay declined 2% and equivalent patient days per calendar day fell 3%.
The shift fueled a 4% month-to-month decline in total daily calendar expense, which outpaced a 1% dip in total daily revenue bolstering margins, according to the advisory firm.
The expense line includes a 2% drop in daily labor expense and a 5% decline in daily non-labor expense compared to February, though on a per adjusted discharge basis, the declines shift to 4% overall, 3% for labor, and 5% for non-labor expenses. The changes generally reflect the declining average length of stay, the firm wrote, though drug expenses’ year-to-date increases (9% per day, 7% per adjusted discharge) remains a burden on hospitals.
Outpatient activity helped sustain hospital revenues during March. Specifically, daily inpatient revenue fell 2%, whereas outpatient revenue remained flat month over month. Net patient service revenue per adjusted discharge also declined 1% as hospitals’ gross operating revenue outpaced their net operating revenue, “highlighting eroding payer mix,” per the report. Bad debt and charity dropped by 6% from February to March, but calendar year-to-date remain 15% higher in 2026 than in 2025.
Kaufman Hall also flagged “two notable outliers” within its regional level analyses: margin improvement among Northeast hospitals “despite historical underperformance,” and drug expense increases among Western hospitals that outpaced the other regions.
Year-over-year comparisons to March 2025 showed an 8% increase in daily net operating revenue (split between 7% inpatient revenue growth and 12% outpatient revenue growth), a 7% rise in total daily expenses (including 4% labor expense increase and 10% non-labor expense increase), a 4% rise in daily adjusted discharges and a 3% drop in average length of stay.
“Hospitals continue to see the effects of payor mix erosion and cost pressures,” Erik Swanson, managing director and data and analytics group leader at Kaufman Hall, said in a statement. “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.”
Accompanying the hospital's report was the firm’s quarterly update on physician group finances and operations, which covers data from over 200,000 employed physicians and advanced practice providers.
Here, Kaufman Hall highlighted a 3% rise in work relative value units (wRVU) per full-time employee compared to 2025’s first quarter, “indicating higher demand for care across physician enterprises.” Organizations’ loss per full-time equivalent per provider rose 1%, to $237,041, while the same measure per physician increased 2% to $315,688.