Weak July results, another large Upper Midwest merger and a major insurer's move against off-campus billing set the tone heading into the fourth quarter.
Kaufman Hall data reported on September 17 showed a single-month operating margin index of 1.1% in July and 1.4% year to date. Seasonal softness in elective surgery played a part, with daily operating room minutes down 3% from June, and daily net operating revenue fell 2%. On the cost side, non-labor expenses dropped 3% from June while labor costs rose 1%, so savings did not keep pace with the revenue decline. The longer-running problem is payer mix: bad debt and charity care were 16% higher year to date than in 2025, extending a trend that has shown up in nearly every monthly report this year. Kaufman Hall noted that as more care moves to outpatient settings, swings in outpatient volume have a bigger effect on overall results.
On September 29, Essentia Health and HealthPartners announced plans to merge into a 22-hospital system with about 45,000 employees. Essentia brings 14 hospitals across Minnesota, Wisconsin and North Dakota. HealthPartners brings eight hospitals in the Twin Cities and western Wisconsin, along with an integrated health plan covering commercial, Medicaid, Medicare Advantage and ACA members. The combined organization would use the HealthPartners name and be led by its CEO, with a target close of January 1, 2027, pending regulatory review. It is the third major Minnesota health system deal in six months, and the Minnesota Nurses Association has called for a thorough review. Executives elsewhere should note the model: pairing a rural hospital network with an established health plan.
Elevance Health said on September 30 that it will require hospitals to identify the exact location where outpatient services are delivered and will pay services at off-campus sites at lower rates. The policy will phase in across 2026 and 2027 and apply to commercial, Medicare Advantage and Medicaid plans covering about 45 million members. The AHA opposes the change, warning it could reduce access to outpatient care. The move shows site-neutral pressure spreading from Medicare to commercial contracts, alongside Congress’s requirement for separate billing identifiers for off-campus departments beginning in 2028 and the CY2027 OPPS proposal.
Executive takeaway: CFOs should identify which off-campus departments rely on hospital outpatient rates and model the loss under Elevance-style policies and federal site-neutral rules. Boards in consolidating markets should review their own partnership options before the market narrows them.
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