How Are Hospitals Faring Financially in 2025?
Kaufman Hall recently released its first report analyzing hospitals’ financial data from 2025, and the advisory firm found that hospitals kicked off this year with a stable performance.
The report examined more than 1,300 hospitals’ financial data from January. Hospitals’ monthly median operating margin was 4.4% in January, up from 3.7% the month before — and much higher than the 2.1% recorded for 2024 as a whole.
High patient volumes — both inpatient and outpatient — show no signs of slowing down, according to Erik Swanson, managing director at Kaufman Hall. This helps hospitals on the revenue side of things, but they continue to battle expense pressures, he pointed out.
Costs are on the rise for drugs, supplies and purchased services, and this will likely weigh on hospitals’ margins as the year goes on, he noted.
“As our population ages, as hospitals become sites of care for higher and higher acuity patients, those pressures are only exacerbated,” Swanson said.
The rising acuity of hospitalized patients — which is due to both the country’s aging population and the shift of lower-acuity care to outpatient settings — can bring increased reimbursement, but rising drug costs and utilization often erode profitability, he explained.
There are a few things hospitals can do to address rising costs.
For instance, hospitals can join group purchasing organizations to leverage some scale for better pricing contracts, Swanson noted. They can also consolidate their vendor spread, as well as consider generic and biosimilar substitutions for certain high-cost medications.
Better discharge planning is important too, Swanson pointed out.
“There is a lot around managing the length of stay. How do we make sure that patients are staying an appropriate amount of time, such that the utilization of those goods and supplies isn’t beyond what is needed for them?” he said.
Accurate clinical documentation is also crucial to ensure hospitals are properly reimbursed for the complexity of care they provide, Swanson added.
He also highlighted a widening gap between the highest- and lowest-performing hospitals.
High-performing hospitals typically take a holistic approach to evaluating service lines and focus on high-margin areas — such as specialty care services like cardiology, orthopedics and oncology — that are better positioned for financial stability, Swanson remarked.
However, smaller and rural hospitals often lack the flexibility to make these types of strategic shifts because they provide essential but lower-margin care — making financial recovery more challenging, he explained.
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