Dive Brief:
- Nonprofit hospitals and health systems rated by credit ratings agency Fitch raised their operating margins and extended their financial recovery last year, according to a Fitch Ratings report based on audited fiscal 2025 data.
- The median operating margin among 222 nonprofit providers rose to 1.5%, compared to 1.1% in 2024, according to the report, and gains were increasingly concentrated among more financially stable providers.
- Still, Fitch warned that 2025 could prove to be an “operational peak” before Medicaid funding reductions and other policy changes begin to pressure hospital revenue more significantly in 2027. Financially unstable and Medicaid-dependent providers have less financial cushion to absorb the coming strain, according to the credit ratings agency.
Dive Insight:
The results suggest nonprofit hospitals are finding their footing after years of pandemic-era disruption. The median operating margin improved for a third consecutive year, and 67% of providers reported a positive margin in 2025, up from 64% the year before and roughly half in 2022.
Still, the 1.5% median margin remains below every pre-pandemic data point in Fitch’s 20-year dataset, and the latest gains were distributed unevenly.
Slower labor-cost growth helped power the recovery. Personnel expenses fell to 52.6% of operating revenue in 2025 from 53.5% in 2024. Strong patient volumes and moderating supply, drug and equipment inflation also buoyed results.
Yet, the sector’s overall financial strength increasingly reflects the performance of its best-positioned systems. Reassuring ratios of cash to debt and debt to total capital could broadly signal a “balance sheet paradox,” because strong portfolio-wide liquidity may mask operating fragility among weaker providers.
Kevin Holloran, senior director of U.S. public finance at Fitch, said the sector was undergoing an “unfinished recovery,” with the divide between financially stronger and weaker hospitals widening. Weaker operating margins signal the most immediate risk for less-stable providers, because deteriorating margins may drain liquidity and make it harder to fund future growth or capacity, he said.
Those financial pressures could deepen as hospitals absorb the effects of the One Big Beautiful Bill Act. The law is expected to reduce Medicaid enrollment and restrict provider taxes and state-directed payments that states use to support hospital reimbursement.
Fitch expects the changes to begin materially affecting providers in 2027, with lower-rated and Medicaid-dependent systems facing the greatest risks.
“Fiscal 2025 may ultimately prove to be an operational peak for the sector before a new and more challenging chapter begins,” Fitch analysts wrote.
