U.S. health systems experienced a downturn in operating margins for the third month in a row, driven by rising costs in non-labor areas such as purchased services, supplies, and pharmaceuticals, according to data from Strata Decision Technology.

The median year-to-date (YTD) operating margin for health systems was 1.6% in September, down from 1.9% in August and a peak of 2.3% in May and June. However, hospitals showed slight improvement with a median YTD operating margin of 5.1%, marking an increase from 4.9% in August and 4.8% in July.

“While median operating margins appear to be stabilizing for our nation’s hospitals, operating margins for broader health systems declined throughout the third quarter of this year,” said Steve Wasson, chief data and intelligence officer at Strata Decision Technology. He attributed the drop to consistently high expenses, including both labor and non-labor costs, which he warned could continue to impact healthcare organizations into the fourth quarter.

Non-labor expenses saw significant year-over-year (YOY) increases across several categories in September, with purchased services up 8.8%, supply costs rising 8.6%, and drug expenses growing 6.8%. Total non-labor expenses rose 6.3% compared to September 2023. Labor costs also contributed to the financial strain, climbing 5.2% over the same period.

On a monthly basis, however, hospitals did see slight expense reductions from August to September, with total expenses decreasing by 2.2% and labor costs down by 2.3%. Nonetheless, per-patient costs continued to rise. Adjusted for patient volumes, total expense per discharge was up 2.8% YOY and 3.7% month-over-month, indicating persistent financial pressures despite small monthly improvements.

Patient demand showed mixed results in September, with a year-over-year increase in inpatient admissions (up 2.7%) and outpatient visits (up 3.8%), although both categories saw declines from August. Specific service lines, such as infectious disease and allergy/immunology, experienced the highest YOY volume growth, while other areas, like ear, nose, and throat services, reported a decrease in patient volume.

Strata’s report, based on data from Comparative Analytics and Strata’s StrataSphere database, draws from over 600 hospitals and more than 120 health systems, offering insights into the ongoing financial pressures facing U.S. healthcare organizations.

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