Becker's Hospital Review

11 CFO / FINANCE Hospitals' margin recovery faces major setbacks By Alan Condon M any nonprofit hospitals and health systems have made steady progress on financial turnarounds since the end of the COVID-19 pandemic — though others continue to struggle — but new and persistent challenges threaten to derail those efforts. Operating margins have inched upward across the sector, yet most remain far below the pre-pandemic "magic number" of 3%. e latest data from Strata Decision Technology shows that health system margins improved slightly to 1% in August, up from 0.9% in July, but remain relatively unchanged for the year. While operating revenue has generally increased, it continues to be offset by rising costs — particularly in non-labor categories (such as supply and drug costs), which rose 5.7% year over year compared to a 4.6% rise in labor expenses. ese pressures could intensify in the months ahead. One of the most substantial threats to hospitals' financial stability is the looming expiration of enhanced ACA subsidies at the end of 2025. Without action from Congress, millions could lose coverage or face higher premiums, leading to more delayed care and greater demand for uncompensated services. e American Hospital Association has warned that the resulting shi could reduce hospital spending by $28 billion over the next decade and further strain already overburdened emergency departments. "While performance has generally been strong this year, profitability has decreased slightly over the past few months. Bad debt and charity care also continue to rise," Erik Swanson, managing director and group leader of data and analytics at Kaufman Hall, said in a news release. "In addition, operating margins for health systems are about one percent lower than hospital margins. is points to potential challenges for hospitals and health systems to weather future uncertainty." Looking ahead, hospitals are also contending with policy-driven headwinds. Unless Congress intervenes, significant Medicaid funding cuts are set to take effect in late 2026 and in 2027 — a looming threat that underscores the need for proactive financial strategies. Despite these obstacles, some of the nation's largest nonprofit systems managed to narrow losses and post positive net income in fiscal year 2025, which ended June 30: • Chicago-based CommonSpirit reported a $225 million operating loss, a significant improvement from its $875 million loss in fiscal 2024. e system's operating margin rose from -2.4% to -0.6%. Total operating revenue grew to $40.1 billion, while expenses climbed to $40.3 billion. CFO Dan Morissette attributed the gains to operational efficiencies and ongoing efforts to improve reimbursements and diversify the system's portfolio. Net income reached $1.6 billion, up from $503 million a year prior. • St. Louis-based Ascension trimmed its operating loss to $490.9 million from $1.8 billion in fiscal 2024. e system's operating margin improved to -1.6%, up from -6.3%. Although total revenue declined 11.3% due to portfolio changes, same-facility operating revenue grew 6.6%. Salaries and benefits dropped 15.2%, supported by labor efficiency strategies. Ascension reported net income of $918 million, reversing a $1.1 billion loss the year before. • Livonia, Mich.-based Trinity Health posted a $12.2 million operating loss, a slight improvement from its $68.4 million loss in fiscal 2024. Its operating margin climbed to break-even. Revenue rose 6.6% year over year to $25.4 billion, and expenses rose 6% to $25.2 billion. Net income surged to $1.3 billion, buoyed by nearly $830 million in investment and equity gains. While these results reflect incremental progress, many nonprofit health systems remain financially fragile. e combination of rising costs, uncertain policy outcomes and changes in coverage affordability could significantly disrupt recovery momentum in the coming year. n Expenses per physician top $1.1M, up 15% in 2 years: 4 notes By Laura Dyrda Physician practice expense growth is driving additional investment across the U.S., according to Strata. The analytics firm surveyed more than 135,000 physicians and 1,850 hospitals to gather financial data every month. Expenses per physician practice have been climbing over the last few years and continued to grow in August, according to the report. Four things to know: 1. The average expense per full time physician hit $1.1 million in August annualized, which is a 5.8% jump from last year and 15.4% increase since 2023, according to the report. The largest increase occurred in the Midwest, at 9.5%, while practices in the West reported a 1.1% year over year decline. 2. Per-physician investments increased 4.7% year over year to $326,199, with hospitals in the Northeast reporting the biggest growth at 11%; practices in the West reported a 0.2% decrease. 3. Median net patient service revenue per physician reached $776,129 in August, a 4% year over year increase and 14.7% jump from two years ago. 4. Physician productivity increased with expenses and revenue. The average work relative value unit per physician increased 1.7% year over year and 7.2% since 2023 while staffing levels dropped. The median staff FTEs per 10,0000 wRVUs declined nearly 1% to 3.59. n

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