The health system posted a 5.6% operating margin in the second quarter to fuel a sharp turnaround from a duration of financial strain.
Cleveland Clinic turned in a much stronger financial performance in the second quarter, underscoring how the health system is regaining stability after years of industry-wide pressures.
The nonprofit reported operating income of $255.3 million, translating to a 5.6% operating margin and representing a sharp improvement from the $45.3 million (1.2% margin) posted in the same period last year. Operating revenue reached $4.5 billion, up more than 15% year-over-year, as patient volumes and insurance revenues both climbed.
Cleveland Clinic noted that much of the improvement was driven by growth in outpatient services and the addition of new Medicare Advantage risk-sharing contracts that began at the start of 2025. Insurance premium revenue rose by about $146 million, while net patient service revenue grew nearly 10%, supported by higher inpatient case mix and steady outpatient demand. Total patient encounters increased 2.7%, with outpatient visits up 6% and outpatient surgical cases up 3.9%.
Expenses also rose in the quarter, climbing about 10% due to swelling pharmaceutical costs, inflationary pressures, and costs tied to new delegated-premium contracts. Still, Cleveland Clinic held personnel cost growth to 4.6% as it continued to reduce reliance on agency staffing, which has been a priority for many hospitals and health systems striving to control labor expenses.
Beyond operations, investment income played a major role in fortifying results. Strong market returns helped generate nonoperating gains of $507.8 million, a significant jump from $142.4 million in the second quarter last year. Altogether, Cleveland Clinic recorded net income of $763.2 million, good for a 15.1% total margin and well beyond the $187.8 million managed in the same period in 2024.
At the midpoint of the year, the system has gained and maintained momentum. For the first six months, Cleveland Clinic reported operating income of $308.1 million, compared to $95.5 million in the first half of 2024, with revenue growth continuing to outpace expense increases.
The balance sheet remains stable, with 309 days of cash on hand and modestly higher long-term debt at $4.8 billion.
While leadership will need to keep navigating inflation, workforce pressures, and the costs of new care models, the second-quarter performance demonstrates the benefits of Cleveland Clinic’s diversified revenue streams and disciplined expense management.
Following a stretch of margin strain, the health system now finds itself with more breathing room and a stronger financial foundation heading into the remainder of the year.
New data shows healthcare hiring cooling in the second quarter, with sharp drops in nursing and technician roles opposing modest gains in physician and pharmacy jobs.
Healthcare job postings slowed in the second quarter of 2025, with notable declines in nursing and technician roles, according to the latest Hiring Lab report from Indeed.
Overall, U.S. job postings are down 8% year-over-year but remain 4% higher than before the pandemic, and healthcare is following that pattern as some occupations experience growth while others face steep drop-offs.
Physicians and surgeons, along with pharmacy roles, are among the few positions still posting gains. Nursing jobs, by contrast, have seen a sharp decline, reversing the long-standing trend of strong demand.
Physicians & surgeons: +3.7% year-over-year
Pharmacy: +2.0%
Therapy: –1.4%
Dental: –4.9%
Medical technician: –8.4%
Personal care & home health: –8.8%
Nursing: –10.0%
For hospital and health system leaders, the slowdown in nursing, as well as in personal care and home health, could be indicative of tighter budgets or shifting care models. At the same time, steady demand for physicians highlights where recruitment efforts may need to focus and signals a rebalancing in how organizations allocate their workforce.
Meanwhile, wage growth in healthcare continues to decelerate to mirror broader economic trends, though some areas retain momentum.
Wage increases for childcare, personal care and home health, and medical technician roles outpaced the overall labor market average of 2.9% in July.
However, personal care and home health is the only subsector to see wages tick up over the past six months, with medical technician remaining flat.
Childcare: –0.3 percentage point change (ppt) in past six months
Personal care & home health: +0.2 ppt
Medical technician: 0% ppt
Dental: –1.4 ppt
Therapy: –0.2 ppt
Nursing: –0.4 ppt
Even with the healthcare labor market softening in the second quarter, it continued to drive broader job growth. In July, the industry accounted for a staggering 76% of all U.S. job gains, adding 55,400 of the 73,000 new positions reported for the month, according to data from Bureau of Labor Statistics.
Healthcare’s performance comes against the backdrop of downward revisions to prior months’ figures, which revealed a much weaker labor market than originally believed. As other sectors like manufacturing and government shed jobs, healthcare’s consistent hiring amid financial pressures highlighted its role as a reliable stabilizer for overall employment.
Hospitals posted stronger margins in June, but rising bad debt and non-labor expenses continue to challenge bottom lines.
Hospital operating margins are on the rise, but maintaining financial stability remains a balancing act.
While revenue improved in June, rising bad debt and non-labor expenses are pressuring margins, even as hospitals work to leverage outpatient services and diversify their revenue streams, according to Kaufman Hall’s latest National Hospital Flash Report.
Through the first six months, the median year-to-date operating margin for hospitals, inclusive of all allocations for the cost of shared services that they receive from their health system, was 3%, compared to 2.4% in May. For the month, the operating margin was 3.7%, marking a significant increase from the 1.6% recorded in May.
Kaufman Hall found that revenue increased in June, with net operating revenue per calendar day up 1% month-over-month and 9% year-over-year. Outpatient revenue in particular is showing strong growth, increasing 1% from May and 12% from June 2024 on a per calendar day basis.
"Higher performing hospitals are nimbler on both the revenue and expense sides," Erik Swanson, managing director and data and analytics group leader with Kaufman Hall, said in a statement. "They may be expanding their outpatient footprint, diversifying services, or managing expenses like purchased services by centralizing some functions. They are also more likely to have value-based care or bundled care arrangements in place."
June also brought a concerning increase in bad debt, outpacing growth rates seen in previous months. Bad debt and charity per calendar day rose 4% compared to May, with Kaufman Hall noting that this trend may reflect shifts in insurance enrollment, especially with programs like Medicaid. Rising bad debt could offset some of the gains from higher volumes and revenue, making it an area worth watching.
Though revenue is trending positively, hospitals are also facing rising costs. Non-labor expenses remain key drivers of overall expense growth, increasing 3% month-to-month on a per adjusted discharge basis. Meanwhile, supply expenses and purchased service expenses were up 3% and 4% month-to-month on a per adjusted discharge basis, respectively.
These costs are swelling alongside revenue, underscoring the need for hospitals to manage expenses as diligently as they pursue growth.
For hospital CEOs, earning the trust of their staff is every bit as critical as strengthening trust with the public.
In this episode of HL Shorts, Vernon Health CEO David Hartberg shares how he's building and fostering trust within the four walls of his hospital by highlighting patient gratitude and pursuing inclusive strategy-building with his staff.
Novant Health’s COO offers advice for fellow hospital leaders aiming to contain costs without compromising quality.
As hospitals and health systems continue to operate on the thinnest of margins, cost containment remains a top priority for leaders everywhere.
However, cutting costs without sacrificing quality is easier said than done, which means it’s essential that organizations identify innovative measures in areas like care delivery and the workforce to improve long-term sustainability.
John Gizdic, executive vice president and COO at Novant Health, recently shared with HealthLeaders how his health system is reducing financial waste and provided tips for other hospital decision-makers striving to do the same.
Following a failed 2024 deal, CHS has signed a letter of intent to transfer three financially challenged hospitals to Tenor Health Foundation.
Community Health Systems (CHS) has restarted the process to offload three financially stressed hospitals in Pennsylvania, this time finding a buyer known for reviving struggling hospitals.
After previously failing to divest Commonwealth Health System, CHS has signed a letter of intent with Tenor Health Foundation that will transfer ownership of Regional Hospital of Scranton, Moses Taylor Hospital, and Wilkes-Barre General Hospital to the California-based nonprofit.
Last year, CHS pursued a sale of the Commonwealth Health System through a deal with nonprofit WoodBridge Healthcare. The $120 million agreement, announced in July 2024, unraveled months later and was mutually terminated in November when WoodBridge failed to secure financing via bond sales.
The three hospitals have financially struggled in recent years. According to reports by the Pennsylvania Health Care Cost Containment Council, operating margins for fiscal year 2023 were -24.1% at Moses Taylor, -9.5% at Regional, and -15.7% at Wilkes-Barre General.
For fiscal year 2024, those margins were -20.6% for Mason Taylor and Regional, which now operate under one license, and -6.2% for Wilkes-Barre General.
While CHS attempted to find another buyer for the hospitals, a group of community organizations subsidized the facilities’ finances by investing millions of dollars to compensate healthcare workers and keep operations running.
With a new buyer in place, the hospitals could finally gain long-term stability.
“This is the first step in a process that we all hope will result in a completed transaction and preserve the healthcare services provided by Commonwealth Health,” a CHS spokesperson said in a statement.
Tenor was formed specifically "to identify, own, manage, and turn around financially challenged hospitals,” particularly in rural and suburban areas with moderate to high financial risk and essential community value, according to the organization’s website.
To accomplish that, Tenor’s strategy centers on “efficiency of revenue cycle, enchaining service lines as appropriate and expense management in areas such as salaries and benefits, professional services, purchased services and supply chain.”
Regarding Commonwealth Health, Tenor CEO Radha Savitala said in a statement: “We look forward to working with the communities served by these facilities.”
Tenor entered the Pennsylvania market earlier this year by acquiring Sharon Regional Medical Center, formerly owned by bankrupt Steward Health Care. The hospital had faced months of uncertainty as Steward’s financial collapse forced service cutbacks and raised fears of closure.
After Tenor purchased the facility for roughly $1.9 million, partly through a partnership with Medical Properties Trust, Sharon Regional resumed core services in March before fully reopening in May.
Bankruptcies hit a three-year low in the second quarter, though the lull for providers is expected to be short-lived.
Healthcare providers are enjoying a brief reprieve from bankruptcies, but financial trouble may be just around the corner.
Bankruptcy filings for healthcare companies with more than $10 million in liabilities plunged to just seven in the second quarter of 2025, marking the lowest quarterly total since the same number was recorded in the first quarter of 2022, according to a report by Gibbins Advisors.
The seven bankruptcies are also a significant downturn from the previous two quarters, which saw 17 through the first three months of this year and 19 in the final three months of 2024. After hospitals experienced four bankruptcies in each of those quarters, no hospital bankruptcies were filed during the second quarter.
Clinics and physician practices, meanwhile, had no bankruptcies in the second quarter and just one to start the year, putting the subsector on pace to finish 2025 well below 2024’s total of 10.
At the other end of the spectrum, pharmaceuticals had its highest quarterly total in nearly two years by suffering five bankruptcies in the second quarter. The remaining two bankruptcies in the most recent quarter came from a medical equipment and supply company and a senior care company.
The healthcare restructuring advisory firm now projects the total number of bankruptcy filings for 2025 to land around 48, representing a 16% drop from the 57 cases recorded in 2024.
However, there are clear signs of storm clouds ahead for providers due to policy shifts in Washington and heightened economic pressures.
The newly enacted One Big Beautiful Bill Act (OBBBA) includes steep funding cuts and its ramifications could particularly harm providers with weak balance sheets or heavy reliance on Medicaid reimbursement.
“The unprecedented funding cuts in the One Big Beautiful Bill Act are deeply troubling for the future of healthcare,” Clare Moylan, principal at Gibbins Advisors, said in a statement. “Hospitals serving vulnerable communities—especially those with high Medicaid populations and dependent on supplemental payments—face the greatest risk. Leadership teams must act now to assess the future impact and craft strategies to stay solvent.”
Additionally, hospital mergers and acquisitions have slowed amid ongoing market volatility, even as interest rates have loosened, Gibbins highlighted.
Hospitals and health systems also continued to content with rising labor expenses, leading to workforce shortages.
Elevated bankruptcy activity in 2026 is likely to be felt in rural settings, where many hospitals are already stretched thin on resources and susceptible to a major loss in revenue from the Medicaid cuts.
The health system has climbed back to profitability through disciplined transformation and systemwide culture change, its leader says.
When James Hereford took over as president and CEO of Fairview Health Services in 2016, he understood the importance of transitioning the organization from more of a holding company to an operating company for its long-term viability.
The Minnesota-based nonprofit, which operates 10 hospitals, was already stretched financially in the early days of Hereford’s tenure. Yet nothing could prepare the health system for the seismic impact the pandemic would have on its bottom line.
“Coming out of COVID in the kind of hyperinflation was a little bit of our near-death experience,” Hereford told HealthLeaders.
That trauma created urgency, forcing Fairview to assess and fix the critical factors to its success, and do it in a way that was sustainable and could lead to broader transformation.
As a result, Fairview went from multi-year losses to financial stability, recording its first operating profit since 2018 in fiscal year 2024. The health system generated over $8 billion in total operating revenue and $51 million in operating income last year, marking a significant turnaround from the operating losses of $189 million and $315.4 million in 2023 and 2022, respectively.
It wasn’t achieved through simple cost-cutting, but by undertaking a disciplined, mission-aligned overhaul that improved margins while raising quality, safety, and patient experience scores to their highest levels, according to Hereford.
“If you get the process right, if you get the work right and do the right things in the right way, a lot of good outcomes happen—financially, quality, safety, customer service, and people are more engaged,” he said.
Building and sustaining the workforce
One of Fairview’s most pressing challenges was labor. Minnesota’s stagnant population growth meant Hereford couldn’t rely on an expanding workforce pool.
“We don’t have a constantly growing population to choose from to create the labor force that we need,” he said. “We have to really create it.”
That meant going upstream into high schools, even junior high, to spark interest in healthcare careers. Hereford leaned into healthcare’s career mobility as a selling point.
The strategy paired long-term pipeline building with immediate cost and staffing improvements. Fairview sharply reduced its reliance on costly traveling nurses, cut overtime, and addressed inefficiencies in staffing systems.
Importantly, these measures weren’t about squeezing staff. Hereford credits Fairview’s lean management approach with keeping the workforce engaged while pushing for operational efficiency.
“I’ve always had a great belief in this idea of taking fairly simple, straightforward tools and putting them in the hands of the people who are actually doing the work and having them improve their own quality,” Hereford said. “The challenge is always does the management system support that. That’s what our focus has been on.”
Hereford’s management system is built on three components: enterprise-wide goal alignment, value stream thinking, and daily tiered huddles.
“We spent a lot of time thinking about value streams,” he said. “How are we creating value for the customer from the very front end… all the way through that experience. Healthcare is very good at the point of care. Where we usually fail is in the space in-between.”
Fairview’s daily engagement system, meanwhile, includes tiered huddles starting on the frontlines and cascading up to a 9:45 a.m. executive huddle to ensures readiness, surface problems quickly, and celebrate wins.
Visual management and leader standard work reinforce accountability and transparency. “It’s easy for leaders to get caught up in their office and in front of a computer,” Hereford noted. “That standard work really helps to know what are the things that leaders can do at every level of the organization to reinforce support.”
Pictured: James Hereford, president and CEO, Fairview Health Services.
Rebuilding accountability and unifying operations
When a planned merger with Sanford Health collapsed, Hereford reassessed his leadership bench. Several long-tenured executives were ready to retire, so he recruited a new COO and CMO to bring fresh energy and operational focus.
“The big part of the accountability on the team was just getting the right people who were ready for the work we faced over that next five-year period,” Hereford said.
Execution of discipline came through the Enterprise Project Management Office, which was later transformed into a Transformation Office to drive both improvement and fundamental change.
Part of becoming more efficient for Fairview was thinking and acting as one system.
Historically, the organization operated as a loose holding company. That siloed approach wasted resources, like when two hospitals 15 minutes apart each sought to build competing vascular programs. Hereford pushed for a single operating structure, unified service lines, and a system operations center to match capacity and demand in real time.
Before, a hospital might send staff home for lack of cases while another Fairview site struggled with overcapacity.
“That’s a great example of not thinking as a system and not being able to see the whole picture,” Hereford said. The operations center now ensures “the right cases [go to the] right place with the right physicians and other clinical staff to really be able to manage that.”
One inflection point came when Fairview tackled length of stay challenges. Multiple teams were initially working on the problem in isolation before eventually taking a systematic approach.
“Our length of stays plummeted while our quality and safety and experience went up,” Hereford said. “The team started to see the benefit… and that reinforcing cycle kind of kicks in.”
Even after getting Fairview on solid footing, Hereford cautioned that the journey is ongoing. The $160 million annual gap between Fairview’s 2% revenue growth and 4% cost growth means the system must relentlessly pursue efficiency and innovation.
“The job is never done,” Hereford said. “We have to continue to drive down that cost structure, innovate, transform, and really challenge the status quo.”
As rural hospitals struggle with mounting financial pressures, some of the biggest urban hospitals are tapping into rural Medicare benefits.
Large, urban hospitals are increasingly taking advantage of a regulatory loophole that allows them to be reclassified as rural under Medicare, according to a new study published in Health Affairs.
The number of dually classified hospitals jumped from three in 2017 to 425 in 2023, qualifying them for higher Medicare reimbursements and access to federal programs designed to strengthen rural health access, the analysis found.
Nationwide, the share of administratively rural hospitals among all acute care non-critical access hospitals increased from 27% in 2013 to 43% to 2023, while the share of administratively rural hospital beds skyrocketed from 13% to 45% during the same period.
In 2023, dually classified hospitals accounted for 61% of all beds in hospitals classified as rural for Medicare payments.
The trend is driven by a 2016 rule change from CMS following two federal appellate court decisions. The revised regulation allows urban hospitals to be classified as both rural and urban simultaneously, regardless of geographic location.
The financial implications are significant. Dually classified hospitals can receive enhanced Medicare payments tied to rural hospital designations, including eligibility for sole community hospital status, the 340B drug pricing program, and additional graduate medical education funding. At the same time, they retain urban payment advantages such as higher wage indexes and capital disproportionate share hospital payments.
These benefits have proven especially attractive to large nonprofit health systems and academic medical centers. The study found that 76% of dually classified hospitals in 2023 were nonprofits and all of the top 20 by net patient revenue were teaching hospitals in major metro areas, including NewYork-Presbyterian Hospital, Cleveland Clinic Hospital, and Cedars-Sinai Medical Center.
The practice is especially prevalent in states on the East Coast, such as Connecticut (84%), Massachusetts (81%), Florida (59%), Pennsylvania (58%), and New York (54%), and states in the West, such as Idaho (67%) and California (66%).
Meanwhile, many hospitals actually located in rural areas continue to be in peril. A report by Chartis earlier this year revealed that nearly half of rural hospitals (46%) are in the red, while 432 facilities are in danger of closure.
“To the extent that federal subsidies continue to play a critical role in the financial viability of geographically rural hospitals and other providers, it is essential to ensure that limited federal resources intended for rural health are directed to those hospitals,” the authors of the Health Affairs study conclude.
“To preserve the integrity and effectiveness of rural health policy, Congress should direct federal support to geographically rural hospitals, where it is most needed.”
The volatility hospitals are experiencing is being felt at the highest levels of leadership, new data reveals.
Challenging conditions at hospitals and health systems are prompting long-tenured leaders to retire, step aside, or be replaced by boards leaning on interim leadership to bridge uncertainty.
Through the first half of 2025, hospitals recorded 68 CEO exits, marking a 3% increase from the 66 announced in the same period last year, according to a report by Challenger, Gray & Christmas.
While hospital CEO turnover was down year-over-year in the first quarter, which featured 31 departures compared to 34 in 2024, activity picked up significantly towards the end of the second quarter. Seventeen of the 68 exits through the first six months came in June, a jump from the five announced in May and a slight increase over the 16 that came in June 2024.
Across all industries, June experienced 207 CEO exits, representing a 23% rise from May’s 168. Still, that total was down 12% from the 234 changes reported in June 2024.
Overall, 1,235 CEOs left their position in the first half of the year, marking a 12% increase from the 1,101 exits logged over the same period last year, making it the highest year-to-date total since the executive coaching firm began tracking CEO turnover in 2002.
‘CEO gig economy’
One of the prominent CEO turnover trends that emerged through the first six months of the year was organizations’ increasing reliance on interim leaders.
One-third (33%) of new CEOs in the first half were appointed on an interim basis, compared to just 9% over the same period in 2024 and 2023, Challenger’s data found. Among the interim appointments, 53% were selected from within the organization, while 47% came from outside.
Though interim leadership can be an appealing strategy for organizations preferring flexibility, both financially and operationally, it can also attract CEO candidates.
“At the same time, more executives are embracing the increasingly attractive option of short-term CEO roles, essentially participating in a ‘CEO gig economy,’” Andy Challenger, labor and workplace expert at Challenge, Gray & Christmas, said in a statement.
At hospitals, mounting pressures from rising costs and regulatory shifts are creating an uncertain environment that’s turning up the heat on both new and long-standing CEOs.
