by
Gus Iversen, Editor in Chief | April 30, 2025
Hospitals and physician practices across the U.S. ended the first quarter of 2025 with higher revenues and expenses, even as operating margins for health systems narrowed slightly, according to new financial benchmarks compiled by Strata Decision Technology from data representing more than 1,600 hospitals and 135,000 physicians.
The median year-to-date operating margin for U.S. health systems declined to 0.9% in March, down from 1% in both January and February. This is the first time since December 2023 that the metric has fallen below 1%. Despite the overall tightening, individual hospital operating margins continued to improve, rising 2.1 percentage points year-over-year (YOY) from March 2024 to March 2025.
Non-labor expenses outpaced other cost categories, increasing 9.1% YOY, driven largely by double-digit jumps in drug (11.5%) and supply (10.8%) expenses. Total hospital expenses grew 7.4% over the same period. Meanwhile, outpatient revenue led growth in hospital revenues, climbing 10.0% YOY, compared with a 9.6% increase for inpatient revenue.
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Patient volumes rebounded in March after February’s declines. Outpatient visits rose 5.6% YOY, while inpatient admissions increased 4.6%. Hospitals in the South recorded the highest growth in outpatient visits at 6.3% YOY.
Adjusted financial metrics showed mixed results. Net patient service revenue per adjusted discharge rose 4.9% YOY but declined 0.2% from February. Expense metrics followed similar trends: total expense per adjusted discharge increased 3.0% YOY but fell 1.1% month-over-month.
Physician practices also faced rising costs. Per-physician expenses rose to $1.2 million in the first quarter, a 10.3% YOY increase. Median investment per physician full-time equivalent reached $347,053, up 5.4% from the previous quarter. Despite higher costs, physician productivity improved, with work relative value units per full-time equivalent up 3.3% YOY.
The financial data was sourced from Comparative Analytics and StrataSphere as of March 31, 2025.
