Hospital Volume Growth Drives Revenue Increase
January 2025 marked a period of stability for hospital finances nationwide, according to Kaufman Hall’s latest “National Hospital Flash Report.” The analysis reveals that increased service volumes have successfully counterbalanced persistently high expenses, allowing hospitals to maintain financial equilibrium as they continue recovering from pandemic-related challenges.
Patient volumes showed robust growth across multiple metrics. Discharges per calendar day increased by 5% year-over-year, while adjusted discharges rose even more significantly at 7%. Emergency department visits also trended upward with a 4% increase compared to January 2024. These volume increases appear linked to seasonal factors, particularly respiratory illnesses including influenza.
“January was a relatively stable month for hospitals, as more people received care due in part to seasonal challenges like flu and other respiratory diseases,” explained Erik Swanson, managing director and group leader of data and analytics at Kaufman Hall.
The report also noted slight year-over-year increases in equivalent patient days per calendar day and adjusted patient days per calendar day. However, hospitals experienced decreases in observation patient days as a percentage of patient days, average length of stay, and operating room minutes per calendar day, suggesting shifts in care delivery patterns.
Inpatient Services Outpace Outpatient Revenue Growth
An interesting trend emerging from the report shows inpatient services generating stronger revenue momentum than outpatient care. This shift represents a notable development in the healthcare landscape, which has traditionally seen greater emphasis on outpatient service expansion.
“Hospitals are also experiencing more rapid revenue growth from inpatient than outpatient services,” Swanson noted in his analysis, highlighting this important industry development.
Overall revenue metrics demonstrated healthy growth across all categories:
- Net operating revenue per calendar day: 6% increase
- Gross operating revenue per calendar day: 8% increase
- Inpatient revenue per calendar day: 7% increase
- Outpatient revenue per calendar day: 9% increase
These revenue improvements were further bolstered by a 6% reduction in bad debt and charity care as a percentage of gross revenue, indicating improved collection efficiency and potentially reflecting changes in payer mix or financial assistance policies.
Expense Challenges Continue Despite Slowing Growth Rate
While revenue growth provides positive momentum, hospitals continue facing significant expense pressures. Labor costs increased by 4% year-over-year, while non-labor expenses grew more rapidly at 6%.
Supply chain challenges persist, with supply costs jumping 7% compared to January 2024. Pharmaceutical expenses also remain a major concern, with drug costs per calendar day rising 6% year-over-year.
Pharmaceutical expenses remain a particular concern for hospital financial leaders. Drug costs per calendar day rose 6% year-over-year, continuing a trend of pharmaceutical spending outpacing many other expense categories.
“Expenses are also rising, driven primarily by drug costs, though the rate of cost growth has slowed,” noted Swanson, highlighting a potential silver lining in the expense picture.
Operating Margins Show Modest Improvement
The cumulative effect of these financial factors resulted in a slight improvement to hospital operating margins. Kaufman Hall’s calendar-year-to-date operating margin index reached 5.1% in January 2025 (without allocations), representing a small improvement from December 2024’s 5.0%.
With allocations factored in—accounting for shared health system services such as corporate office expenses—the operating margin index stood at 4.4%. This allocation-inclusive metric represents a new addition to Kaufman Hall‘s reporting methodology.
The modest margin improvement reflects the ongoing balancing act hospitals face between revenue growth and expense management. While increased patient volumes have boosted top-line performance, the persistent expense growth continues to constrain bottom-line results.
The latest data suggests hospitals are finding sustainable financial footing despite ongoing challenges. The ability to grow revenue through increased service volumes while managing expense growth marks a crucial stabilization point after years of pandemic-driven volatility.
As hospitals navigate 2025, balancing volume growth against persistent expense pressures will remain essential to maintaining financial stability and supporting healthcare delivery nationwide.
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