Monthly Healthcare Industry Financial Benchmarks

Health System Operating Margins Slip into Negative Territory to Start 2026 

This report highlights the latest trends in financial performance for U.S. hospitals and physician groups, drawn from monthly data from more than 135,000 physicians and over 1,900 hospitals.  

Hospitals and health systems nationwide started the new year under increased financial pressures, as overall performance weakened in January. Highlights from the January 2026 data include:

• Median year-to-date (YTD) health system operating margins fell to negative 0.6%, down from 1.3% in December 2025, marking the largest month-over-month decline in more than a year.
• Drug expense was the fastest growing expense category, rising 6.8% year over year (YOY) in January and contributing to a 6.4% increase in total non-labor expense and a 5.4% rise in total expense overall.
• Growth in outpatient revenue continued to outpace inpatient expense increases, rising 4.4% from January 2025 to January 2026 compared to 2.5% for gross inpatient revenue.
• Patient demand slowed across most care settings to start the year, with emergency department visits and observation visits seeing the biggest YOY decreases at 11.2% and 6.1%, respectively.
• Physician practice financial pressures intensified, with median investment per physician FTE rising to $374,257, up 11.8% from 2025, as per-physician expenses increased and productivity declined.

Hospital Performance Benchmarks  

The latest benchmarks illustrate the interplay of revenues and expenses on historically tight hospital operating margins. 

*Note: Operating margins are calculated on a percentage point change basis.

Operating Margins: Health system operating margins declined sharply to begin the new year, due in part to month-over-month revenue decreases that outpaced expense improvements. The median year-to-date (YTD) operating margin fell to negative 0.6%, down from 1.3% in December 2025.** This marks the largest month-over-month decline in more than 12 months and represents a notable shift from 2025, when operating margins remained within a few tenths of a percentage point of 1% for most of the year.

Operating margins also weakened at the individual hospital level in January. The median change in operating margin declined 2.4 percentage points YOY and 3.1 percentage points month over month. Similarly, the median change in operating earnings before interest, taxes, depreciation, and amortization (EBITDA) margin fell 2.5 percentage points YOY and 3.0 percentage points from December to January.

Performance varied by census region. Hospitals in the Northeast and South experienced a 1.2 percentage point YOY decline in median change in operating margin. Hospitals in the Midwest and West saw steeper decreases of 3.2 and 3.1 percentage points, respectively.

Smaller hospitals experienced the most significant pressure. Hospitals with 0–25 beds reported a 3.2 percentage point decline in median change in operating margin, while those with 26–99 beds saw a 3.9 percentage point decrease. Changes across other hospitals by bed size were:

• 100–199 beds: down 0.3 percentage point
• 200–299 beds: down 0.8 percentage point
• 300–499 beds: down 2.2 percentage points
• 500 beds or more: down 2.5 percentage points

**Note: Some of the variation in health system operating margins can be attributed to the year-to-date view, which reflects the full year of performance for December, but just one month of performance at the start of the year in January.

Hospital Expenses: Hospital expenses increased in January compared to early 2025 levels, though some improvement was evident compared to the prior month. Total non-labor expense continued to post the largest increases, rising 6.4% from January 2025 to January 2026, while total labor expense increased 4.9% YOY. As a result, total expense grew 5.4% over the same period.

Elevated spending in areas such as drugs and supplies drove non-labor expense growth. Drug expense rose 6.8% YOY in January, while supply expense increased 4.6% and purchased services expense increased 4.0% compared to the same time last year.

Drug expense trends varied considerably by census region. Hospitals in the South experienced the largest increase, with drug expense up 10.0% YOY. The Midwest and West reported increases of 7.5% and 7.1%, respectively, while the Northeast saw a more modest rise of 2.1%.

On a month-over-month basis, expense performance improved across most major categories nationally. From December to January, total expense declined 0.6%, and total non-labor expense decreased 2.6%, reflecting 7.0% reductions in both supply and drug expenses. Total labor expense, however, increased 2.7% month over month.

Expenses increased across most measures on a per-patient basis. Total expense per adjusted discharge increased 5.0% YOY and 1.3% month over month. Labor expense per adjusted discharge rose 2.9% YOY and 4.5% compared to December, while non-labor expense per adjusted discharge increased 6.9% YOY but declined 0.3% month over month.

Looking more closely at labor trends for the month, contract labor expenses remained relatively steady to start the year. Contract labor as a percent of total labor expense decreased 0.4% YOY and was unchanged month over month in January. Meanwhile, the hospital average employed hourly rate decreased 3.1% from January 2025 to January 2026 and decreased just 0.4% from December to January. Hospitals saw overtime improve compared to early 2025 levels but increase versus late 2025. Overtime hours as a percent of total productive hours decreased 1.3% YOY but rose 5.2% month over month.

Hospital Revenues: Hospitals reported YOY revenue growth in January, though performance softened compared to late 2025. Gross outpatient revenue continued to outpace inpatient revenue growth, increasing 4.4% YOY compared to 2.5% for gross inpatient revenue. Overall, gross operating revenue rose 3.9% over the same period.

On a month-over-month basis, however, revenue trends were more mixed. Gross operating revenue declined 2.3%, and outpatient revenue fell 4.3%, while inpatient revenue increased 2.6% from December to January. At a regional level, outpatient revenue increases ranged from 1.1% YOY in the Northeast to 6.6% in the South and 7.0% in the West.

Results were uneven on a per-patient basis. Net patient service revenue (NPSR) per adjusted discharge increased 1.2% YOY but declined 1.8% month over month. NPSR per adjusted patient day rose 3.6% YOY and decreased 4.0% from December to January. At the same time, uncompensated care continued to rise. Bad debt and charity care increased 7.7% from January 2025 to January 2026 and grew 1.0% month over month.

Patient Volume Benchmarks 

Hospital inpatient and outpatient volumes are drawn from analysis of more than 10 million patient visits. 

Hospital volumes: Patient demand softened across most hospital volume metrics in January, marking a slower start to 2026. Outpatient visits declined 2.5% YOY, while inpatient admissions decreased 2.4%. Observation visits fell 6.1%, and emergency department (ED) visits experienced the steepest decline, dropping 11.2% compared to January 2025.

Month-over-month trends reflected similar patterns. From December to January, ED visits decreased 12.2%, observation visits declined 8.2%, outpatient visits fell 4.6%, and inpatient admissions decreased 4.1%.

Volume performance varied by census region. Hospitals in the Northeast reported the largest YOY decline in outpatient visits, down 5.8%. Hospitals in the South experienced the most significant decrease in inpatient admissions, which fell 4.9% over the same period.

Service line volumes: Patient demand varied across service lines, with several specialties posting strong gains despite broader volume declines. Ophthalmology recorded the largest YOY increase in patient volume, rising 17.5%, according to the latest available data from December. Genetics and Hematology followed, with increases of 12.8% and 12.2%, respectively. The Cancer service line saw patient demand grow 10.6% from December 2024 to December 2025.

Other service lines experienced more modest YOY growth. Patient volumes increased 1.7% in Gynecology, 1.8% in General Medicine, and 2.4% in Pulmonology. In contrast, Normal Newborn volumes declined 10.7%, and Ear, Nose, and Throat volumes decreased 3.5% YOY.

Procedure volumes: Across 15 common procedure types, 12 recorded YOY volume increases while three experienced declines. Outpatient upper gastrointestinal endoscopies saw the largest increase, with volume rising 17.7% from December 2024 to December 2025. Outpatient magnetic resonance imaging (MRI) followed with a 15.2% YOY increase.

Procedures that saw YOY volume declines included inpatient primary knee replacements (down 8.8%), outpatient X-ray imaging (down 1.9%), and outpatient microbiology laboratory procedures (down 0.8%).

Children’s hospital volumes: Children’s hospitals experienced volume declines across most settings to begin the year. ED visits saw the most significant decrease, falling 16.4% YOY, according to data through January 31. Inpatient admissions declined 5.2%, and outpatient visits decreased 2.5% over the same period. Observation visits were nearly flat, down just 0.1% compared to January 2025.

Physician Practice Benchmarks 

A look at last month’s key performance indicators from more than 10,000 physician practices. 

Physician investments: The level of investment needed to support physician practice operations grew by double digits in recent months. For November 2025 to January 2026 annualized, the median investment per physician full-time equivalent (FTE) increased to $374,257. That marked a sizable 11.8% increase compared to 2025 and a 17.2% jump versus 2024.

The metric increased for physician groups across all census regions compared to 2025 levels. Practices in the West had the biggest increase at 14.8%, followed by those in the South at 12.8%. Median investment per physician FTE increased 7.1% for practices in the Northeast and 8.8% for practices in the Midwest versus 2025.

Physician expenses: Ongoing expense increases contributed to the rise in physician investment levels. Total expense per physician FTE was about $1.2 million for November 2025 through January 2026 annualized, rising 3.1% compared to 2025 and 8.0% versus 2024.

Per-physician expenses increased for practices across three of four census regions compared to 2025. Practices in the Northeast had the biggest increase at 6.8%, while the metric increased 5.4% for practices in the South and 4.1% for those in the West. The Midwest was the only region to see a decrease, with practices there seeing a 3.9% drop in the metric.

Physician revenues: Practices saw per-physician revenues decrease compared to 2025, but increase versus two years ago. For November to January annualized, median net patient service revenue (NPSR) per physician FTE was $767,682. That was down 1.9% from 2025 and up 2.7% compared to 2024.

Revenue performance varied widely for practices across different census regions. In the Northeast, median NPSR per physician FTE jumped 6.4% for the three-month period annualized versus 2025. The metric was nearly flat for practices in the South and Midwest, where it rose just 0.5% and 0.3% over the same period, respectively. Meanwhile, per-physician revenues decreased 5.7% versus 2025 for practices in the West.

Physician productivity and staffing: Physician productivity levels decreased as staffing levels increased. Median work relative value units (wRVUs) per physician FTE were 6,065 for November 2025 through January 2026 annualized, marking a 3.8% decrease compared to 2025 and a 2.8% drop from 2024. The metric was down 3.9% versus 2025 for practices in both the South and Midwest, but up 1.2% and 2.9% for practices in the West and Northeast, respectively.

Staffing levels increased over the same period. Median support staff FTEs per 10,000 wRVUs — a measure of staffing levels and productivity — rose to 3.7 for the three-month period annualized, reflecting a 2.6% increase from 2025 and a 4.0% increase from 2024.

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