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Gus Iversen, Editor in Chief | August 04, 2025
U.S. hospitals and physician practices wrapped up the second quarter of 2025 with steady financial performance, according to new data from Strata Decision Technology analyzing more than 1,850 hospitals and 152,000 physicians.
Operating margins remained stable, though rising non-labor expenses — particularly for drugs and supplies — continued to challenge providers.
Health system operating margins held at a median 1.2% year-to-date in June, marking the sixth straight month of relative stability. Hospitals also posted year-over-year gains in operating margins, with the median change rising 2.4 percentage points from June 2024. Facilities in the South saw the sharpest increase, while hospitals in the West experienced a decline. Small hospitals with fewer than 25 beds saw the largest drop among size categories.
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Hospital expenses continued to rise, driven mainly by a 9.8% year-over-year jump in drug costs. Overall non-labor expenses climbed 8.2%, outpacing a 3.8% increase in labor expenses. Total expenses were up 5.1% from June 2024, though they eased slightly month over month.
Hospital revenues grew year over year for the 26th consecutive month. Outpatient revenue rose 12.3% and inpatient revenue increased 7.0% compared to June 2024. Net patient service revenue per adjusted discharge increased 3.3% year over year and 2.2% from the previous month.
Patient volumes were mixed. Outpatient visits rose 8.2% year over year, while inpatient admissions increased 3.7%. Emergency department visits declined 5.2%, and observation stays fell 1.0%. Month-over-month figures showed declines across all categories.
Physician practices also saw year-over-year revenue growth, with median net patient service revenue per full-time physician reaching $826,575 in Q2, up 11.4%. However, expenses grew as well, with total cost per physician FTE climbing 11.4% compared to Q2 2024. Physician productivity, measured in work RVUs, rose 8.2% year over year.
Support staffing levels increased modestly, and the median investment per physician FTE rose to $322,490, a 1.7% year-over-year gain. Practices in the Northeast saw the largest investment increases, while the South reported declines.
