Outpatient Growth Emerges as Lever for Hospitals Navigating Financial Strain

The latest Kaufman Hall data highlights volatile recovery as outpatient revenue helps stabilize, but not restore, financial performance.

As hospitals manage financial strain stemming from rising costs and uneven volumes, outpatient care remains an area of opportunity to relieve pressure.

That’s the reality depicted in Kaufman Hall’s latest National Hospital Flash Report, which shows hospital finances beginning to stabilize after a weak start to the year, but still falling short of late-2025 performance.

Based on data from more than 1,300 hospitals, the healthcare advisory firm’s calendar year-to-date operating margin index, inclusive of all allocations for the cost of shared services received from health systems, was 1.9%, considerably below the 3.7% margin posted at the end of 2025. On a monthly basis, February margins improved to 2.1%, up from 1% in January, representing some recovery, albeit not a full rebound.

The gap is indicative of ongoing challenges on both sides of the ledger. Daily net operating revenue increased 5% month-over-month and 4% year-over year-in February. However, costs kept pace, with total daily expenses rising 5% from January and 6% compared to the prior year.

On a per adjusted discharge basis, net patient service revenue was flat month-over-month and up 3% year-over-year, while total expenses rose 1% from January and 3% from February 2025, leaving little room for margin expansion.

Non-labor expenses in particular are enduring, jumping 7% monthly and yearly on a per calendar day basis. Within that, supply costs and purchases service expenses per calendar day are up 5% and 9%, respectively, from January.

Outpatient care continues to stand out as a relative bright spot, with February seeing 7% gains month-over-month and year-over-year in outpatient revenue. Meanwhile, inpatient revenue saw modest increases of 1% from January and 4% from last year.

Still, that shift comes with tradeoffs. The report noted that as more care moves to outpatient settings, hospitals also face revenue dilution and a higher concentration of complex, high-acuity patients on the inpatient side.

Volume trends reinforce that dynamic. While February showed slight improvement from January, the year-over-year picture remains up-and-down as discharges per calendar day fell 2%, adjusted discharges rose 2%, adjusted patient days declined 1%, average length of stay dropped 4%, and emergency department visits decreased 5%.

Those figures reveal an environment that’s still recalibrating, with fewer inpatient encounters but growing reliance on outpatient services.

“Hospitals are off to a relatively soft start in 2026,” Erik Swanson, managing director and leader of Kaufman Hall’s data and analytics group said in a statement. “Outpatient care strategies offer a potential path forward, though hospitals must manage both revenue dilution and a greater concentration of high-acuity patients as a result.”

Overall, the February data highlights a balancing act for hospitals. Outpatient growth may help offset some financial headwinds, but persistent costs, shifting payer mix, and inconsistent volumes continue to keep margins under duress.