U.S. Health Systems See Margin Declines to Start the Year While Hospital Margins Grow, According to Two New Strata Reports
Hospitals see ongoing growth in gross revenues, even as expenses continue to rise
CHICAGO – February 27, 2024 – Operating margins for the nation’s health systems narrowed in January after climbing to a five-month high to end 2024. The median year-to-date health system operating margin was 1.0% for the month, down from 2.1% in December. It is the lowest health system operating margins have been in more than a year, after holding at 1.5% or above throughout 2024 following years of volatility.
At the same time, the nation’s hospitals saw margins and revenues strengthen entering the new year, continuing trends seen in 2024, according to two new reports from Strata Decision Technology. The Monthly Healthcare Industry Financial Benchmarks report features a snapshot of the latest hospital performance data from January, and the quarterly Strata Performance Trends report provides a deeper dive, retrospective look at hospital and health system performance last year.
“Health systems across the country had a shaky start to 2025,” said Steve Wasson, Chief Data & Intelligence Officer at Strata. “While health system operating margins largely stabilized in 2024 after the turbulence of the pandemic, they remained uncomfortably thin. We saw encouraging trends with gross revenue growth outpacing expense increases last year. These and other positive performance trends will need to continue in 2025 in order for health systems to build a stronger foundation for operating margin growth.”
For the nation’s hospitals, analysis of operating margin changes over time showed some improvement in January. The median change in hospital operating margin increased 1.9 percentage points from January 2024 to January 2025. Month-over-month, the metric increased just 0.3 percentage point.
Gross hospital revenues showed promising performance to start 2025, with January marking the 21st consecutive month of year-over-year (YOY) increases in gross operating, inpatient, and outpatient revenues. Outpatient revenue increases continued to outpace inpatient revenue growth. Outpatient revenue jumped 9.2% from January 2024 to January 2025, while inpatient revenue increased 6.7% and gross operating revenue was up 8.3% YOY.
After adjusting for patient discharges, however, hospital revenues were essentially flat. Net patient service revenue (NPSR) per adjusted discharge decreased 0.4% for January 2024 versus January 2025, and was unchanged month over month.
Median gross revenue growth outpaced expense growth throughout 2024 for both hospitals and health systems. From 2023 to 2024, gross operating revenue rose 9.0% for the U.S. health systems and 7.5% for U.S. hospitals. By comparison, health system total expense was up 6.4% and hospital total expense increased 5.4% over the same period.
Overall hospital and health system labor expenses continued to climb in 2024 and in the first month of 2025, despite lower contract labor costs, as organizations focused on initiatives to retain employed staff. Total health system labor expense increased 5.7% and total hospital labor expense increased 4.2% for all of 2024 versus 2023. For the month of January 2025 versus January 2024, total hospital labor expense was up 4.0%.
Total hospital non-labor expenses — and supply and drug expenses in particular — showed the highest growth rates in January compared to other expense categories. For January 2025 versus January 2024, total non-labor expense rose 5.6%, supply expense jumped 6.8%, drugs expense was up 6.2%, and purchased service expense increased 4.7%. Looking back at 2024, non-labor expense growth outpaced labor expense increases for the year, with total non-labor expense up 5.8% from 2023 to 2024 versus the 4.2% increase in total labor expense previously mentioned.
Contract labor expense was the only expense category to see decreases in 2024, and those decreases were significant. From 2023 to 2024, contract labor expense dropped 22.7% for health systems and 37.5% for hospitals. These trends illustrate that organizations have successfully scaled back use of contract labor, which spiked during the pandemic due to widespread labor shortages and increased patient demand.
About the Data
The report uses data from Strata’s StrataSphere® and Comparative Analytics 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 600 hospitals with StrataJazz® Decision Support.
About Strata Decision Technology
Strata Decision Technology provides a cloud-based platform for software and service solutions to help organizations better analyze, plan, and perform in support of their missions. With the combination of Syntellis Performance Solutions’ Axiom solutions, more than 2,300 organizations rely on Strata to provide their financial analytics, planning, and performance solutions. Strata has been named the market leader for Business Decision Support for 18 consecutive years. By uniting these two industry leaders, Strata continues to deliver market-leading solutions and world-class service, with an increased focus on accelerating innovation. For more information, please go to www.stratadecision.com.
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