Article
The January numbers
Kaufman Hall’s National Hospital Flash Report, released March 19 and based on data from more than 1,300 hospitals, put the median operating margin index at 2.1% in January, including health system allocations. That compares with 4.9% in December.
- Net operating revenue fell about 5% from December.
- Labor expense per calendar day rose 3% from December and 5% from a year earlier.
- Total expense per calendar day was up about 5% from January 2025.
- Inpatient and outpatient volumes both declined.
- Bad debt and charity care continued to climb.
Reading the trend
One month does not make a trend. January results often reflect elective procedures postponed around the holidays, and the report cites that as one possible cause. But it also points to changes in payer mix, which are not seasonal. If more patients arrive uninsured or underinsured, bad debt and charity care will keep rising even as volumes recover.
The labor figures deserve attention. Labor spending rose in January while volumes fell, which suggests staffing did not flex with demand. That may be reasonable for a short dip, but it becomes expensive if volumes stay soft.
The revenue side offers little cushion. With net operating revenue down from December and expenses still rising faster than a year ago, even a modest volume shortfall can push a thin margin to breakeven. Systems that set 2026 budgets assuming steady volume growth should test what a flat or slightly lower first quarter does to covenant ratios and capital plans.
What to watch in the coming months
- Payer mix by service line, especially self-pay and exchange plan volumes, compared with 2025.
- Point-of-service collections, financial assistance screening and presumptive charity processes.
- Productivity measures, such as worked hours per adjusted discharge, reviewed weekly rather than monthly.
- Elective volume recovery in February and March, to separate seasonal effects from structural ones.
Boards and finance committees should expect a clear explanation of which of these drivers are temporary and which may persist through the year.
Archive entry for Mar 20, 2026, added Nov. 11, 2026.