The fact that many U.S. hospitals and health systems are in financially fragile positions is widely acknowledged. New reports from Strata Decision Technology, which offers cloud-based business decision support, offer quantitative confirmation of this trend, finding that rising expenses and decreasing revenue, including upcoming reimbursement changes and policy changes, are relentlessly straining facilities’ and systems’ ability to minimize impacts.
Strata’s Monthly Healthcare Industry Financial Benchmarks for January 2026 found:
- Median year-to-date health system operating margins fell to negative 0.6%, down from 1.3% in December 2025 – “the largest month-over-month decline in more than a year,” reported Strata.
- Medications were the fastest-growing expense category, rising 6.8% year over year in January and contributing to a 6.4% increase in total non-labor expense and a 5.4% increase in total expense overall.
- Growth in outpatient revenue continued to outpace inpatient expense increases, rising 4.4% from January 2025 to January 2026 compared to 2.5% for gross inpatient revenue.
- Patient demand slowed across most care settings, with emergency department visits and observation visits decreasing by 11.2% and 6.1%, respectively.
- Median investment per physician Full-Time Equivalent (FTE) rose to $374,257, an 11.8% increase from 2025. “Per-physician expenses increased while productivity declined, concluded Strata.
- Take a deeper dive into the full report here.
Strata’s Healthcare Performance Trends Report for the fourth quarter of 2025 found:
- Non-labor expense growth has outpaced labor expense growth for more than a year, “with the gap widening on both a total and per adjusted discharge basis by the end of 2025,” reported Strata.
- Drug expenses increased by 17.4%, while medical supply expenses increased by 7.2%, compared to a Q4 2023 baseline.
- Outpatient revenue growth has exceeded inpatient revenue growth in six of the past eight quarters.
- Health systems are increasingly focused on workforce stability, using increases in compensation and benefits to attract and retain staff “even as productivity levels remain relatively steady.”
- Organizations are prioritizing front-line patient-facing roles, while management roles are being reduced.
- Access the full report here.
“Margins turning negative to start the year is a clear signal that financial conditions remain fragile,” said Steve Wasson, Strata’s chief data and 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.”
