The latest National Hospital Flash Report reveals that hospital margins tightened in August, suggesting continued financial pressure heading into the final quarter of 2025.
Hospitals continued to feel financial strain in August as margins declined and expenses climbed, according to Kaufman Hall’s latest National Hospital Flash Report.
The findings indicate a challenging environment for hospitals heading into the final months of the year, with depressed patient volumes, rising non-labor costs, and increasing uncompensated care weighing on performance.
The median hospital operating margin for the month, including all allocations for the cost of shared services that they receive from their health system, fell to 0.1% in August, down from 2.3% in July. The median calendar year-to-date operating margin, inclusive of allocations, dropped from 2.4% in July to 1.9% in August, reflecting persistent financial headwinds.
Volumes weakened across key indicators, with discharges and patient days per calendar day both declining month-over-month by 1% and 2%, respectively. Net operating revenue per calendar day was also down 2% compared to July, suggesting hospitals are generating little additional income to offset rising expenses.
On the expense side, costs per calendar day remain higher than a year ago, particularly with non-labor expenses. Supply costs are up 5% versus August 2024, while drug costs are up 4% and purchased service costs are up 5%. That category continues to be a major driver of financial strain, emphasizing the importance of supply chain and spend management initiatives for hospital leaders seeking to protect margins.
Another growing concern is uncompensated care. The report shows that both bad debt and charity care as a share of gross revenue have climbed 1% month-over-month and 2% year-over-year. With changes in federal policy on the horizon, hospitals could see these levels rise further, adding to their financial vulnerability.
“The slight declines in patient volume and the continued rise in uncompensated care indicate some uncertainty ahead, and hospitals should focus on building resilience now,” Erik Swanson, managing director and leader of data and analytics at Kaufman Hall, said in a statement. “The increase in expenses continues to pressure organizations. While hospitals can’t influence external forces like the rising costs of raw materials or the uncertainty in global trade, they can explore strategies to contain these costs.”
The cumulative effect of these trends suggests hospitals are heading into the last quarter of the year under mounting pressure. Expense growth continues to outpace revenue gains, and volume recovery remains elusive in many markets, forcing hospital leaders to renew focus on finding efficiencies.
Jay Asser is the CEO editor for HealthLeaders.
KEY TAKEAWAYS
The median hospital operating margin fell sharply to 0.1% in August, down from 2.3% in July, Kaufman Hall found.
Non-labor expenses, including supplies, drugs, and purchased services, increased 4% to 5% year over year.
Uncompensated care increased for the second consecutive month, prompting analysts to urge hospitals to strengthen financial resilience amid where possible.