Do hospitals make money? Margins from 6,421 Medicare cost reports

Yes, hospitals make money. The median US hospital reported a 5.6% operating margin in its most recent Medicare cost report. That sentence hides more than it tells you, because the same median hospital lost money treating patients. Its patient-care margin was negative 2.4%. Cafeterias, parking garages, 340B pharmacy spread, investment income, and grants turned the year positive.

We pulled the income statement of every hospital that files a cost report with CMS. That is 6,421 hospitals and $1.52 trillion in net patient revenue, the whole sector. Here is what the books say, and why most margin numbers you have seen elsewhere answer a different question than the one you asked.

The short answer, and why your number differs

Most published margin figures come from panel surveys. Kaufman Hall and Strata publish monthly operating margin averages in the 4 to 6% range, built from a private panel of health systems that skews large. Useful for spotting a trend a quarter early. Useless for telling you what a specific hospital earns, or what the typical hospital earns, because a weighted average of big systems is neither of those things. A monthly average also bounces with seasonality that a full fiscal year smooths out.

Cost reports answer what the panel cannot. Every hospital that accepts Medicare files one annually, the filings are public, and each carries a full income statement. Median total operating margin across every filer: 5.6%. The middle half of hospitals sits between negative 2.4% and positive 14.5%. Nearly a third, 31%, lost money on operations in their latest year.

So when someone quotes you "the" hospital margin, ask which hospitals and which definition. The average hospital is a fiction. The distribution is the answer, and the definition matters even more.

What "margin" means here, exactly

Two definitions carry this analysis, and most coverage blurs them into one number.

Patient-care margin is net patient revenue minus operating expense, divided by net patient revenue. What treating patients earns, before anything else the hospital happens to own or collect. Median: negative 2.4%.

Total operating margin is operating income including other operating revenue, divided by total operating revenue. The number hospitals report, bond analysts model, and journalists quote. Median: positive 5.6%.

The eight-point spread between those medians is other operating revenue: 340B pharmacy margin, cafeteria and parking receipts, investment income booked as operating, research grants, and, in the years it flowed, federal relief money. Put plainly, the median hospital's core business loses money and its side businesses pay the bills. That is the operating model of American hospitals, visible in the filings.

Our figures come straight from HCRIS. Where the data comes from covers what a cost report holds, what it misses, and where the definitions bend.

The distribution: a third of hospitals are in the red

Line up the 6,083 hospitals with a usable latest-year income statement and the spread is enormous. The bottom decile posts an operating margin of negative 15% or worse. The top decile clears 23.3%. Net margin, which adds non-operating items, lands at a 5.6% median with a third of hospitals negative. EBITDA margin: 7.5% at the median. Between a struggling rural facility and a packed suburban surgical hospital there is no shared "industry margin," only a position on this curve.

The spread is why hospital finance headlines manage to be simultaneously true and contradictory. "Hospitals post record profits" is a story about the top quartile. "Rural hospitals face closure" is a story about the bottom decile. Both describe the same year and the same data. Any profitability claim that skips where in the distribution it points is closer to advocacy than analysis.

The trend: trough in 2022, most of the way back by 2024

By year, the median total operating margin tells a clean story. 2021: 10.4%, inflated by federal relief funds, an artifact rather than a baseline. 2022: 3.1%, the trough, when contract labor spiked, volumes wobbled, and the relief money dried up at once. Then a slow climb: 4.0% in 2023, 5.5% in FY2024. Early FY2025 filings, about 2,400 so far, are tracking above FY2024, though the year is too incomplete to lean on.

The share of hospitals losing money on operations traces the same arc: 19% in 2021, 39% at the 2022 bottom, back to 30% by 2024. The recovery is underway, but it will not restore 2021, because 2021 was subsidized. It has restored something close to the sector's normal, and normal is a business where three of every ten participants lose money on operations.

Patient care loses money at the median. Every year.

Strip out other operating revenue and the recovery looks much thinner. Median patient-care margin: negative 1.6% in 2021, negative 4.0% in 2022, negative 3.6% in 2023, negative 1.9% in FY2024. In every one of those years, 54 to 61% of hospitals spent more delivering care than the care brought in. No year in the data shows treating patients as a break-even business for the median hospital.

This is the structural fact underneath every hospital finance story you will read this year. Payer rates, labor costs, and case mix set the patient-care number, and at the median it comes up short. Everything else on the income statement is gap-filling, and how much gap-filling a hospital can do depends on assets with nothing to do with clinical care: a 340B designation, an investment portfolio, a parking deck in a dense market.

The per-patient version is starker still. The median hospital loses $360 per adjusted discharge, and the middle half of the sector spans losing $2,374 to making $1,280 per patient. The unit economics are in what a hospital makes per patient.

The big and the profitable

Size and margin are different leaderboards, and the gap between them is instructive. New York Presbyterian is the largest hospital in the country by net patient revenue at $10.09 billion, and earned a 4.2% operating margin on it, below the sector median. NYU Langone ($8.69 billion) and Stanford Health Care ($8.29 billion, 12.9%) fill out the top of the size table. The margin table looks different: AdventHealth Orlando posted a 21.0% operating margin on $7.15 billion of NPR, worth $1.61 billion of net income at a nonprofit, and MD Anderson matched the 21.0% on $5.42 billion. Scale helps. It does not decide the outcome.

Every one of the 6,421 hospitals has a free profile with these numbers and the five-year trend, in the directory.

How to read a margin, by seat

The same 5.6% means different things depending on where you sit. A lender reads margin as debt capacity and cares whether EBITDA covers the term sheet; the 7.5% median is the starting point, not the answer. An acquirer reads a target against the distribution, because underwriting a turnaround at a p75 price is the classic way hospital deals go wrong. An operator watches the patient-care line, the part management can actually move. A journalist should read all three before writing the headline.

The free profile carries revenue, margins, and the trend for any hospital. The Pro screener benchmarks a hospital against its state, size, and ownership peers, which is where a margin number becomes a judgment.

FAQ

Do hospitals make money? Most do, barely. The median operating margin is 5.6%, and 31% of hospitals lost money on operations in their latest cost report year. The median hospital loses money on patient care itself and covers the gap with other operating revenue.

What is the average hospital operating margin? We publish the median, not the average, because a handful of giant systems drag averages around. Median total operating margin: 5.6%. Middle half of hospitals: negative 2.4% to positive 14.5%.

How many hospitals lose money? Depends on the line you read. 31% lose money on operations, 33% post a negative net margin, and 56% lose money on patient care specifically.

Why do hospitals lose money on patient care? Reimbursement does not keep pace with the cost of care at the median facility. Medicare and Medicaid pay below cost for many services, and not every hospital has the commercial volume to offset it. What hospitals charge vs what Medicare pays shows the gap between list prices and Medicare payments per procedure.

Are nonprofit hospitals profitable? Frequently, yes. Nonprofit means no shareholders, not no surplus. AdventHealth Orlando's $1.61 billion net income is retained and reinvested, not distributed. What nonprofits give back in charity care is its own question: how much charity care hospitals provide.

Sources and method

All figures are computed from Medicare cost reports (CMS HCRIS), most recent filed year per hospital. 94% of hospitals are current within the last two fiscal years; trend figures use 2021 through 2024, the years with full coverage. Figures are hospital-level and self-reported to CMS, not consolidated audited financials. Definitions: patient-care margin = (net patient revenue - operating expense) / net patient revenue; total operating margin = operating income including other operating revenue / total operating revenue. Medians throughout, never means. More on the source: Medicare cost reports, explained. The revenue base, defined: net patient revenue.

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