Hospital financial performance strained by payer mix and rising costs

Hospital financial performance remained uneven in the second quarter as policy changes and broader economic pressures affected the not-for-profit (NFP) and for-profit segments.

In the NFP sector, median health system operating margin ticked upward to 0.4% year-to-date (YTD) through May, according to monthly data from Strata Decision Technology. But the metric wasn’t quite as steady for individual hospitals, falling by 1.5% month over month to land at 0.2% YTD.

The disparity “reflects enterprise-level operating or admin expenses which may or may not be allocated to individual hospitals,” the report states.

The key categories underpinning sector-wide financials maintained a pattern that has been evident in recent years, with expenses eating into strong revenue gains.

On a year-over-year (YOY) basis, expenses for individual hospitals rose by 5.5% in May, driven by increases of 4% for supplies, 3.9% for labor and 3.3% for drugs. Those increases are down from the peak jumps seen in the aftermath of the pandemic for labor and over the past two years for supplies and drugs.

Gross operating revenue increased by 5.9% YOY, with near-equal growth in inpatient (5.7%) and outpatient (6.1%) settings.

ACA coverage losses increase hospitals’ uninsured volumes

With Affordable Care Act (ACA) marketplace enrollment dropping by at least 2.9 million this year amid the expiration of enhanced subsidies for buying marketplace insurance, hospitals have been grappling with the repercussions.

Q2 reporting from the for-profit sector put that issue in the spotlight, noting that to a greater extent than anticipated, people who lost coverage did not stop using hospital services or enroll in other insurance.

“We expected some of these patients to shift to other forms of coverage, but this did not happen,” said Sam Hazen, CEO of HCA Healthcare. “Instead, these patients migrated almost one for one to uninsured.”

HCA’s marketplace-adjusted admissions declined by 15%. Although marketplace and self-pay admissions were essentially unchanged on a combined basis, the shift of roughly 22,000 patients to self-pay had a negative EBITDA impact of $400 million in Q2, even as EBITDA overall increased by more than 4% (to $4.03 billion) YOY.

At Tenet Healthcare, admissions among marketplace enrollees fell by 13.5%, with associated revenue dropping by 17%, or roughly $65 million. The volume shift was accompanied by a relatively proportional increase in uninsured patients.

The health system compensated with growth in the commercially insured segment, along with acuity improvement and operational savings, leaders said.

Community Health Systems (CHS) reported a substantial second-quarter increase in self-pay activity that spurred the organization to revise part of its 2026 investor guidance.

“We’ve updated our estimate of how many of these disenrolled patients are continuing to come to our hospitals, which is driving higher costs to provide care with minimal related net revenue,” said Jason Johnson, CFO.

In Strata’s report on the NFP sector, uncompensated care surged by 9.3% YOY in May. Even so, the metric was virtually flat (0.3%) when considered as a percentage of gross revenue.

Economic pressure contributes to elective procedure declines

For-profit health systems described weakness in elective procedures, especially inpatient surgeries. At HCA, emergency inpatient surgery volume rose, but elective cases declined, resulting in an overall 2.3% YOY decrease on a same-facility basis.

The drop-off in ACA marketplace enrollment “is a big part of it,” Hazen said.

CHS noted declines in orthopedics and some cardiac procedures. In addition to increases in uninsurance, underlying issues include rising deductibles in ACA and employer-sponsored insurance, plus broader concerns with inflation and economic insecurity, CHS’s leaders said.

“[Orthopedics] are typically procedures that people can delay or at least defer for periods of time,” said Kevin Hammons, CHS’s CEO. “Get a cortisone shot, maybe continue to try to manage the pain and manage through some rehab, at least for a period of time.”

Even cardiac procedures can be viewed as elective, he added, with procedures getting pushed back as people defer cardiology consults and screenings.

Tenet likewise linked volume hits in hospital-based elective inpatient surgery to markets with greater ACA enrollment declines, while noting that hospital outpatient surgeries and higher-acuity ambulatory surgery center (ASC) procedures performed well.

In the NFP sector, the long-term increase in demand for outpatient care was reversed, at least temporarily. Outpatient volumes fell 1.8% YOY and 8.4% from April to May. Emergency department visits fell by 2.6% and 1.2%, respectively.

Seasonality could have been a factor.

“Whether these figures are an outlier or signal a true shift in patient-demand patterns remains to be seen,” Strata wrote.

Flipping the general trend of recent years, inpatient care was more of a volume backstop for NFP hospitals, increasing by 2.4% YOY and 0.8% from April.

Underlying demand for acute care remains strong

Consistency in volumes, even amid deterioration in the payer mix, suggests demand for acute care fundamentally is strong. HCA and Tenet cited factors such as population growth and aging, along with heightened rates of chronic disease.

Both organizations reported adjusted-admission growth in the mid-2% range from Q2 2025. HCA described short-term plans to add between 1,000 and 1,200 inpatient beds across its nearly 200 hospitals, as well as to launch between 250 and 300 new outpatient sites.

“This is not an environment that one would describe as negative,” said Saum Sutaria, chair and CEO of Tenet. “In our business, we’re not seeing some kind of consumer pullback occurring right now.”

Although Tenet’s same-facility surgical case volumes fell by 1.2% YOY in the ambulatory segment, net revenue per case jumped by 6.3%, “reflecting our high-acuity focus,” said Sun Park, executive vice president and CFO.

Revenue gains from surgery may have been structurally easier to realize at Tenet, with its ownership stake in United Surgical Partners International, than at other systems.

“Our surgery centers are picking up, but it is lower-acuity surgeries and not the orthopedic and some of the cardiac procedures that you would normally have expected,” CHS’s Hammons said. “We are seeing really good increases in clinic visits, and in things like orthopedic MRIs. Those continue to outpace prior year at a pretty significant rate, which would suggest we’re capturing the patients.

“They probably still need the procedures, [but] those visits and screenings are not translating into surgeries, which supports our belief that it’s more of an economic decision — that people are delaying.”