Health System Margins Negative to Start 2026, Drug and Non-Labor Costs Continue to Climb

CHICAGO, March 12, 2026 (GLOBE NEWSWIRE) -- Health system operating margins dipped into the red to start the new year, decreasing to negative 0.6% as month-over-month revenue decreases outpaced expense declines, according to data from Strata Decision Technology’s latest Strata Performance Trends report.

The national analysis also shows that non-labor expense growth outpaced labor expense growth for more than a year, with the gap widening throughout 2025. Drug expenses increased at a substantially faster rate than medical supply expenses, and outpatient revenue growth continued to exceed inpatient revenue increases, reflecting long-running shifts in care delivery.

“Margins turning negative to start the year is a clear signal that financial conditions remain fragile,” said Steve Wasson, Strata’s Chief Data & Intelligence Officer. “When revenue softens and non-labor costs continue to grow faster than labor, it further tightens already narrow operating performance. If economic uncertainty persists throughout 2026, understanding cost structure and revenue mix will be critical in the months ahead.”

Margins turn negative as revenue softens and non-labor costs accelerate

Median year-to-date health system operating margins fell to negative 0.6% in January 2026, down from 1.3% in December 2025, reflecting the largest decline in more than 12 months. The decrease was due in part to month-over-month revenue decreases that outpaced expense declines. From December to January, gross operating revenue decreased 2.3% and outpatient revenue fell 4.3%, while total expense declined 0.6%, and total non-labor expense decreased 2.6%.

Looking at the past few years, non-labor expense increases first surpassed labor expense increases in Q4 2024 and continued to accelerate. By Q4 2025, non-labor expenses were up 13.4% compared to the Q4 2023 baseline, while labor expenses rose 10.1%.

Drug expense increases continued to outpace medical supply expense growth throughout 2024 and 2025. By Q4 2025, drug expense per adjusted patient day had risen 17.4% compared to the Q4 2023 baseline, versus a 7.2% increase in medical supply expense per adjusted patient day.

Outpatient growth and workforce shifts reshape performance landscape

Gross outpatient revenue has grown faster than gross inpatient revenue in six of the past eight quarters. In Q4 2025, gross outpatient revenue was up 16.8% compared to the Q4 2023 baseline, while gross inpatient revenue increased 9.0%.

Although staffing productivity stabilized, labor expense per adjusted patient day rose 6.5% from 2023 to 2025, largely driven by compensation pressures as organizations raise pay and benefits to compete for a limited pool of healthcare professionals. Benefits expense per adjusted patient day increased 12%, and employed paid hourly rates rose 8% over the two-year period.

About the Data

This report uses data from Strata’s Comparative Analytics solution and 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 1,900 hospitals. StrataSphere is a comprehensive data-sharing platform representing approximately 25% of all provider spend in U.S. healthcare.

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. 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. Strata delivers market-leading solutions and world-class service, with an increased focus on accelerating innovation. For more information, please visit www.stratadecision.com.

Media Conta
Stephanie Fergione, Inkhouse
strata@inkhouse.com

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