5 financial metrics health system leaders are targeting next year

Modern Healthcare – Monday, December 29, 2025
By Alex Kacik

Health systems are looking to shore up their finances as they brace for reimbursement cuts and an expected rise in uncompensated care.

Providers are facing Medicaid federal funding reductions from President Donald Trump’s July tax law and an anticipated increase in the number of patients without insurance. Many plan to make a final push next year to improve revenue and lower their costs before the brunt of changes begins to take effect in 2027.

Borrowing costs may rise if providers don’t meaningfully improve their operations in 2026, potentially leading to service reductions, layoffs or closures.

Here are five financial measures health system executives will be focusing on in 2026, providers and analysts said.

1. Days cash on hand

Days cash on hand shows how long a hospital can operate without new revenue. Providers can use cash to pay down debt, support capital improvements and fund mergers and acquisitions.

If days cash on hand drops too low, ratings agencies or lenders might downgrade a provider’s credit rating, increasing their borrowing costs. Operators may also have to put off deferred maintenance, pause strategic initiatives, slow debt repayment or cut workforce expenses.

“Days cash on hand serves both as an early warning system and a measure of long-term sustainability,” said Kevin Holloran, senior director of credit ratings agency Fitch Ratings.

Many large health systems have relied on investment income to maintain steady levels of cash on hand, even when their operations aren’t profitable. Next year, hospitals plan to treat more patients, bolster higher-paying services and limit administrative costs to try to boost cash reserves further, health system executives and analysts said.

“We look to make investments in higher-acuity service lines, which have a higher margin profile,” Kevin Hammons, CEO of Franklin, Tennessee-based Community Health Systems, said regarding profitability in November during the UBS Global Healthcare Conference.

2. Net patient revenue per adjusted admission

Net patient revenue is a main driver of days cash on hand. The measure illustrates median hospital revenue — minus contractual allowances and discounts — for inpatient and outpatient services. Analysts use the metric alongside inflation rates and care complexity changes to benchmark hospital financial performance.

Claims denials and prior authorization can drag hospital revenue. Revenue per adjusted admission can drop if outstanding claims are not recovered or if denials lead to adjusted, lower-paying codes.

Many health systems, including CommonSpirit Health, have looked to increase revenue by streamlining billing and coding. The Chicago-based system is focused on limiting claim denials, documenting claims appropriately, increasing point of service collections, reducing the age of accounts receivables and increasing reimbursement through insurer contract negotiations, said Benjie Loanzon, senior vice president of finance and corporate controller at CommonSpirit, during a December investor call.

“One of our priorities is to continue to have revenue yield improvements,” he said.

Patients losing insurance can also dent net patient revenue. Dallas-based Tenet Healthcare Corp. will use its revenue cycle subsidiary, Conifer Health Solutions, to try to stem the loss of Medicaid and Affordable Care Act coverage next year, CEO Saum Sutaria said on an October earnings call.

3. Labor as a percentage of overall expenses

Many health systems have not been able to grow revenue fast enough to keep up with inflation. The biggest driver of rising costs is labor, which typically accounts for more than half of a hospital’s overall expenses.

In response, health systems have shrunk labor costs relative to their overall expenses as they have restructured their workforce and limited the use of staffing agencies.

Organizations across the country have laid off administrative and middle-management positions. They have also reduced their reliance on travel nurses and temporary workers by using technology to better project fluctuations in demand.

“We feel much better about our capacity on the labor side,” Sam Hazen, CEO of Nashville, Tennessee-based HCA Healthcare, said during an October investor call.

Health systems have said they hope to continue to tweak their workforce structure in 2026, while they have cash reserves to experiment with staffing strategies.

4. Non-labor costs as a percentage of overall expenses

More patients are using expensive drugs, such as gene therapies for sickle cell anemia and the diabetes and weight-loss drugs glucagon-like peptide-1s. Tariffs have also inflated the cost of medical supplies and equipment.

Health systems are trying to attack drug and supplies cost growth in multiple ways. They are renegotiating vendor contracts, clamping down on utilization of high-cost drugs when appropriate and revamping their technology infrastructure.

For example, CHS rolled out a new electronic resource platform in early 2025 to try to better manage supply costs, executives said.

“With our [electronic resource platform], we think that is a big lever to begin to grow margin and take out more cost,” CHS’ Hammons said during the UBS Global Healthcare Conference.

5. Operating margin

Each of the above individual hospital metrics influences operating margin, which measures how much profit or loss a hospital generates from patient care after paying day-to-day operating expenses. It excludes investment income and philanthropy, offering a financial viability benchmark for analysts and credit ratings agencies.

Operating margins are typically narrow throughout the hospital sector, especially for rural and safety-net providers. Medicaid funding cuts and insurance coverage losses are expected to hit those health systems the hardest.

Declining operating margins in 2026 could lead to service cuts and hospital closures.

“Hospitals have some time to make operational changes,” Fitch’s Holloran said. “The only way they can fail is if they don’t use this runway appropriately — hospitals need to get a running start so they have a little cushion.”

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