by
Gus Iversen, Editor in Chief | April 07, 2025
Health system operating margins remained flat in February as rising costs continued to weigh on financial performance, according to new data released by Chicago-based Strata Decision Technology.
The median year-to-date operating margin for health systems held at 1.0% in February 2025, the same level as January and down from 2.1% in December 2024. However, hospitals reported some positive movement, with higher operating margins compared to a year ago.
“Expense increases continue to exert pressure on our nation’s hospitals and health systems in the early months of 2025,” said Steve Wasson, chief data and intelligence officer at Strata. “While expenses are increasing across all categories, non-labor expense increases have outpaced labor expense growth for the past three months. Reining in these increases will be a primary focus for healthcare leaders as we head into the second quarter of the year.”
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While hospital margins improved year over year, month-over-month trends were mixed. The median hospital operating margin rose 1.4 percentage points compared to February 2024 but declined by the same amount from January to February 2025. The median EBITDA margin increased 1.1 percentage points year over year but fell 1.2 percentage points month over month.
Non-labor expenses, particularly in purchased services, continued to climb. Purchased services costs were up 8.7% year over year, followed by supply expenses at 6.7% and drug costs at 5.4%. Overall, non-labor expenses rose 5.7% compared to the previous February. Labor expenses were up 2.2%, and total expenses increased 4.2% year over year.
On a monthly basis, hospitals saw some cost relief. Total expenses fell 4.9% from January to February, with labor expenses down 7.1% and non-labor expenses down 3.1%.
Patient demand declined across most categories. Emergency visits dropped 6.1% year over year and nearly 15% month over month. Inpatient admissions were the exception, increasing 1.5% year over year.
Despite overall lower visit volumes, inpatient revenue rose 7.4% compared to February 2024, outpacing outpatient revenue growth at 4.4%.
