Hospital Expenses, Revenues Continue to Rise Even as Health System Operating Margins Narrow, According to New Strata Data
Health system operating margins fall below 1% for first time in over a year
CHICAGO – April 24, 2025 – Hospitals nationwide saw increases across most metrics to close the first quarter in March, including both higher expenses and higher revenues, according to new data from Strata Decision Technology. At the same time, health systems across the country saw operating margins drop below 1% for the first time in 15 months.
The median year-to-date (YTD) health system operating margin narrowed slightly to 0.9% in March, after holding steady at 1% for both January and February following a drop from 2.1% in December 2024. The last time the median YTD health system operating margin was below 1% was in December 2023, when it was also 0.9%.
Individual hospitals, however, continued to see margin gains. The median change in hospital operating margin rose 2.1 percentage points from March 2024 to March 2025, marking a fourth consecutive month of year-over-year (YOY) increases for the metric. Month-over-month, the median change in hospital operating margin was up just 0.4 percentage point.
“We’ve seen some encouraging growth in hospital operating margins throughout the first quarter, but health system operating margins shifted in the wrong direction in March,” said Steve Wasson, chief data and intelligence officer at Strata Decision Technology. “The continued growth in non-labor expenses is particularly concerning heading into the second quarter, as many healthcare leaders brace for the impacts of tariffs, which are expected to drive up the costs of drugs and supplies even more.”
Non-labor expenses again rose faster than other expense categories for March, as both drug and supply expenses experienced double-digit increases compared to March 2024. Total non-labor expense jumped 9.1% from March 2024 to March 2025, driven by an 11.5% YOY increase in drugs expense, a 10.8% YOY increase in supply expense, and a 9.5% YOY increase in purchased service expense. Total labor expense was up 5.6% and total expense increased 7.4% over the same period.
Expenses also rose YOY after adjusting for patient volumes. Non-labor expense per adjusted discharge rose 5.7% YOY as supply expense per adjusted discharge increased 7.9% YOY, drugs expense per adjusted discharge rose 6.6%, and purchased service expense per adjusted discharge increased 5.9%. Labor expense per adjusted discharge was up 1.1% YOY while total expense per adjusted discharge rose 3.0% YOY.
Patient demand increased nationwide across most metrics in March, marking a shift after demand decreased across most metrics in February. Growth in outpatient visits outpaced inpatient admissions, with outpatient visits rising 5.6% YOY and inpatient admissions up 4.6% YOY. Observation visits increased 1.9% and emergency visits were up 1.8% from March 2024 to March 2025.
While overall patient volumes increased, patient demand decreased YOY across most service lines, according to the latest service line data from February. Some of the decreases can be attributed to the fact that 2024 was a leap year, so the YOY comparisons include one extra day in February 2024 versus February 2025. Ear, nose, and throat (ENT) had the largest YOY decrease, with patient volumes down at 14.6%. Infectious disease was one of the few service lines to see patient demand increase, with patient volumes jumping 18.7% YOY even with the shorter month in February 2025.
Hospitals continue to see YOY growth in overall and adjusted revenues. Gross outpatient revenue had the biggest increase at 10.0% from March 2024 to March 2025. Inpatient revenue rose 9.6% YOY and gross operating revenue increased 9.7% over the same period. March was the 23rd consecutive month of YOY increases across the three gross revenue metrics. Revenues also increased YOY after adjusting for patient volumes, with net patient service revenue (NPSR) per adjusted discharge up 4.9% YOY, and NPSR per adjusted patient day up at 5.6% YOY.
About the Data
This report uses data from Comparative Analytics and Strata’s StrataSphere® database. Comparative Analytics offers access to near real-time data drawn from more than 135,000 physicians from over 10,000 practices and 139 specialty categories, and from 500+ unique departments across more than 1,600 hospitals. Comparative Analytics also provides data and comparisons specific to a single organization for visibility into how their market is evolving. StrataSphere is a unique and comprehensive data-sharing platform that helps providers leverage the power of a network that represents approximately 25% of all provider spend in U.S. healthcare. This report incorporates data from more than 650 hospitals from over 120 health systems with StrataJazz® Decision Support.
About Strata Decision Technology
Strata Decision Technology, LLC provides a cloud-based, enterprise performance platform for software, and data and service solutions to help organizations better analyze, plan, and perform in support of their missions. More than 2,300 organizations rely on Strata’s StrataJazz and Axiom solutions for financial analytics, planning, and performance management. Named the market leader for Business Decision Support for more than 15 consecutive years, Strata delivers first-class solutions and service, with an intense focus on accelerating innovation. For more information, please go to www.stratadecision.com.
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