Healthcare Continues Shift To Outpatient As Hospital Margins Dip

Where patients receive hospital care is continuing to shift, according to the latest financial performance data from Kaufman Hall.

The healthcare consulting firm released its monthly National Hospital Flash Report, which analyzes data from more than 1,300 hospitals. Along with reporting operating margins for May, the report highlighted the ongoing migration of care from inpatient settings to outpatient facilities.

Year to date, daily inpatient discharges remained relatively flat, while adjusted daily discharges rose 2%. At the same time, the average length of stay declined by 2%. Outpatient activity, however, continued to outpace inpatient growth. Daily outpatient revenue increased 6% year over year and 8% year to date. Compared with the same period three years ago, outpatient revenue has climbed 26%, underscoring the industry’s continued shift toward delivering care outside the traditional hospital setting.

“The trend should prompt hospitals and health systems to reassess how they allocate resources as ongoing financial pressures reshape care delivery,” the Kaufman Hall data stated.

Recent federal policy changes have accelerated the transition. The Centers for Medicare & Medicaid Services (CMS) is in the second year of eliminating Medicare’s inpatient-only list, which specifies procedures covered only when patients are formally admitted to a hospital. The list is scheduled to be fully phased out by 2028, giving hospitals and ambulatory surgery centers (ASCs) greater flexibility in determining where procedures are performed.

CMS has also expanded the number of surgeries eligible for reimbursement in freestanding ASCs and implemented additional site-neutral payment policies aimed at lowering the cost of hospital outpatient care. In response, many health systems are shifting investments away from traditional inpatient campuses and toward lower-cost community care sites, imaging centers, and ASCs.

At the same time, executives are weighing the financial implications of broader site-neutral payment policies, which reduce reimbursement rates for hospital outpatient services to levels comparable with physician practices. Leaders are also evaluating whether their revenue cycle management systems can efficiently process growing volumes of lower-dollar outpatient claims, which differ significantly from the more complex, higher-value claims associated with inpatient care.

As more routine procedures move to outpatient settings, hospitals are increasingly caring for patients with higher-acuity, more resource-intensive conditions. That shift is prompting organizations to redesign their cost structures to better support increasingly complex inpatient care.

“Health systems must adapt their portfolios and operations to support the future of care delivery,” Erik Swanson, managing director and leader of the Data and Analytics Group at Kaufman Hall, said in a press release. “Reevaluation of organizational strategies and resource allocation may also unlock new opportunities to maximize effectiveness going forward.”

Hospital Margins Slip in May

The report also found that hospital operating margins softened in May after several months of improvement. Researchers reported a calendar year-to-date operating margin index of 2.9% and a monthly operating margin index of 2.7%, both measured as medians before allocations. Those figures declined from April, when hospitals posted a year-to-date operating margin index of 3.6%—the strongest performance of 2026—and a monthly operating margin index of 3.6%, following 3.7% in March.

While hospital finances had been improving earlier this year, rising labor and operating expenses continue to pressure margins. In May, both labor costs and total expenses increased 5% compared with the same month last year. Hospitals also experienced growing uncompensated care. Bad debt rose 16% per calendar day year over year, while charity care increased 7% as a share of gross operating revenue.

The report comes as enhanced Affordable Care Act Marketplace premium tax credits have expired, contributing to lower enrollment and higher insurance premiums. As coverage becomes less affordable, some consumers are opting to go without comprehensive health insurance.

Hospital finance leaders are closely monitoring how these coverage changes, along with Medicaid reforms, could affect uninsured rates and influence where patients seek care, whether at outpatient facilities or hospital emergency departments.

Source: Tech Target