In 2024, hospitals' daily net operating revenue increased by 8%, inpatient revenue increased by 8%, and outpatient revenue increased by 9% compared to 2023. Net patient service revenue per adjusted discharge increased by 3%.

At the same time, full-year daily total expenses increased by 6% year-over-year, with labor increasing by 5%, nonlabor by 7%, supply expenses by 9%, drug expenses by 9%, and purchased services expenses by 8%.

Although the findings suggest that hospitals are in a good financial position, Kaufman Hall noted that there are still other trends that could challenge hospitals in the future. For example, there was a 14% increase in bad debt and charity care in 2024.

"While it's encouraging to see continued stability in hospitals' financial well-being over the past 12 months, historically slim margins indicate hospitals are not yet in a fully sustainable position," said Erik Swanson, SVP and data and analytics group leader at Kaufman Hall. "The uptick in bad debt and levels of uncompensated care provided by hospitals will be an indicator to monitor over the next several months. On the workforce front, we continue to see a competitive and tight labor market across the healthcare sector."

What the headlines don't reveal about hospital finances 

  By Paul Trigonoplos, Daniel Kuzmanovich, and Abby Burns

Although it's true that the hospital sector's median financial performance has improved in the last year, this doesn't mean that all hospitals are out of the woods when it comes to financial pressure.

According to Strata, 40% of hospitals were operating in the red in May 2024, even though the median operating margin at the time was 4.1%. At present, data from the Center for Healthcare Quality & Payment Reform shows that more than 700 rural hospitals are facing the risk of closure, including more than 300 hospitals at risk of closing within the next three years. The instability in the sector is also reflected in ratings agencies' activities: In the first half of 2024, the S&P downgraded 4.3 not-for-profit hospitals for every 1 it upgraded. Per one ratings agency leader, "more hospitals are falling into the extreme ends of the credit rating trifurcation."

Overall, the hospital financial performance gap has turned into a chasm, even as more organizations reach a point of operating margin stability.

At the same time, several structural margin pressures are looming — even for health systems that are achieving financial success. In our executive briefing, 17 Things CEOs Need to Know in 2025, we outline some of these structural forces, including:

• Payer mix shifting more heavily toward government-sponsored insurance
• Healthcare organizations continuing to operate within a hybrid payment environment
• Demographic and site-of-care utilization shifts driving up medical complexity of hospital patients
•  Increasing reliance on unpredictable non-operating revenue sources, such as investment income or supplemental payments

According to recent Advisory Board surveys from financial and strategic planners, health systems' overwhelming sentiment is that addressing immediate financial challenges and improving operating efficiency are the top priorities for 2025 — a universal response that represents a far cry from the headlines of this story. Two things can be true: the average 2024 margin improved to almost 5%, and hospitals and health systems remain supremely challenged in the long term.

In a recent Radio Advisory podcast, Advisory Board's Max Hakanson emphasized the importance of adaptability for healthcare leaders going forward, noting that there has been a shift from topline revenue growth to sustainable growth through margin improvement and differentiated growth paths. Rather than growing to just get bigger or earn better revenues, leaders are focusing on getting stronger overall.

In the same conversation, Advisory Board's Natalie Trebes said that knowing their strengths and capabilities will help healthcare leaders prioritize investments and navigate the future. "Knowing yourself, your strengths, and your capabilities is going to help you prioritize," she said. "You need to know your identity and what your staff really anchors on, is motivated by, and is capable of, and that is going to help you get through this tumultuous future."