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Care continues shift to outpatient as hospital margins dip

Outpatient revenue jumped 8% YTD while operating margins fell to 2.7% in May, prompting strategic changes, Kaufman Hall reports.

Jacqueline LaPointe
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Published: 14 Jul 2026

Where hospital care happens is fundamentally shifting, according to the latest hospital financial performance data from Kaufman Hall.

The healthcare consulting firm released its monthly National Hospital Flash Report yesterday, drawing on data from more than 1,300 hospitals. In addition to outlining operating margins for the month of May, the report also highlighted an ongoing trend  -- the shift from inpatient to outpatient hospital care.

Year-to-date, daily discharges remained stable, while adjusted daily discharges increased by 2%. The average length of stay also fell by 2% during that period.

But daily outpatient revenue was significantly up by 6% year-over-year and 8% year-to-date. Notably, the metric increased by 26% year-to-date compared to this time three years ago.

This underscores the ongoing shift of care outside the hospital, Kaufman Hall explained. A move that should prompt hospitals and health systems to rethink resource allocation as cost pressures continue to challenge finances.

Recent health policy changes have supported this transition of care out of the hospital. CMS is in the second year of phasing out Medicare's inpatient-only list, which details procedures that Medicare only covers when a patient is formally admitted as an inpatient. The list will no longer exist by 2028, giving hospitals and ambulatory surgical centers more flexibility for site-of-care service.

CMS has also aggressively revised criteria to make more surgeries eligible for reimbursement at freestanding ASCs. The agency also implemented more site-neutral payment policies to make hospital-based outpatient care more affordable.

Hospital financial leaders are making moves to shift resources from the traditional inpatient centers to these more convenient, lower-overhead community care sites, imaging centers and ASCs.

However, they are also considering how the expansion of site-neutral payment policies, which bring down reimbursement rates to those of physician practices, could dampen profitability. They are also considering how their organizations' revenue cycle management technology can handle higher volumes of low-dollar claims compared to more complex, costly inpatient services.

This shift of more straightforward surgeries to outpatient centers is also leaving remaining inpatient beds dominated by highly complex, acute cases. This requires leaders to restructure the organization's cost structure to align with higher-acuity, resource-intensive cases within the hospital.

"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 dip in May

The report also revealed slightly lower operating margins in May than in the previous month and over the last year.

Researchers calculated a calendar year-to-date operating margin index of 2.9% and a monthly operating margin index of 2.7%. Both figures are medians without accounting for allocations.

This compares with April 2026, when hospitals were performing significantly better, with a year-to-date operating margin index of 3.6% -- the highest so far this year. The monthly operating margin index was also higher in April, at 3.6%, following another high of 3.7% in March.

Hospital financial performance seemed to be on an upswing, but labor and expenses have put further downward pressure on hospitals. In May, both areas remained elevated, up 5% each compared to this time last year.

Additionally, bad debt and charity care increased over the last year, with year-over-year increases of 16% per calendar day and 7% of gross operating revenue.

This comes on the heels of the expiration of the enhanced premium tax credits for coverage through the Affordable Care Act Marketplace, which has decreased enrollment and increased premiums. Many people have already chosen to forgo comprehensive health insurance to avoid significant cost increases.

Hospital financial leaders are monitoring how these reforms and those to Medicaid will affect the uninsured rates and where their patients will seek care, whether in an outpatient center or the emergency department.

Jacqueline LaPointe is an Executive Editor at Xtelligent Healthcare Media, covering revenue cycle management, healthcare payers, health policy and health IT since 2016.

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