July was a stumble for hospitals’ operations as weak outpatient volumes and ongoing payer mix erosion dragged nationwide margins.
Healthcare advisory firm Kaufman Hall, in its latest monthly benchmark report, outlined a calendar year-to-date operating margin index of 1.4% and a single-month operating margin index of 1.1% (both including health system allocations for shared services costs).
Those numbers reflect a 3% year-to-date slowdown compared to the same period in 2025, as well as a substantial 8% operating margin plummet just from June to July.
By the firm’s reckoning, a slowdown in outpatient volumes and particularly elective surgeries played a role. Daily operating room minutes dropped 3% from June to July “likely due to seasonality of elective surgeries,” the report reads. “As more care shifts to outpatient settings, hospitals may see greater impact of outpatient volume fluctuations on overall performance.”
Another key factor is the continued strain of bad debt and charity care flagged by the firm over the last few months. These increased by 1% month over month, but year-to-date are 16% higher as of July. “As pressure from these trends mounts, hospitals may need to redesign their financial and operational strategies for future sustainability,” Kaufman Hall’s report said of the trend.
More broadly, hospitals’ daily net operating revenue dipped 2% month to month while gross operating revenue was flat. Daily inpatient revenue rose by 1% whereas outpatient revenue remained unchanged. Also from June to July, net patient service revenue declined 3% per adjusted discharge and by 1% per adjusted patient day.
The middling revenues came as hospitals increased their daily discharges and adjusted discharges by 2% and 1% respectively, as well as their ED visits by 1%. At the same time, average length of stay declined 1% and observation patient days’ share of total patient days dropped by 6%—volume trends that Kaufman Hall said “may potentially be an early signal of greater focus on clinical documentation and utilization management, sharpening how hospitals classify and code patients.”
As for expenses, hospitals’ daily total dipped by 1% month to month as a 3% decline in non-labor expenses outpaced a 1% increase in labor expenses. The spread was more apparent on a per adjusted discharge basis, declining 2% overall, increasing 1% for labor and dropping by 5% for non-labor spending.
Year to date and compared to 2025, Kaufman Hall’s report showed a 6% increase in net operating revenue (5% inpatient, 9% outpatient), flat daily discharges, 3% higher daily adjusted discharges and 6% higher daily total expense (4% labor, 8% non-labor).
Kaufman Hall’s reports pull data from more than 1,300 nationwide hospitals as collected by Strata Decision Technology.