Most U.S. hospitals are still losing money to start 2026, and the pressure is coming from multiple directions at once. Margins remain negative, claim denials are rising, and providers are collecting less from patients, even as revenue grows. For companies working in medical debt and revenue cycle management, the message is clear: healthcare providers are under increasing financial strain, and that strain is spilling over into how debt is created, managed, and ultimately recovered.
The big picture: Margins remain under pressure
According to Strata Decision Technology data, the average hospital operating margin improved slightly from -0.6% in January to -0.3% in February, but the industry is still operating at a loss overall.
- Revenue is growing, up 6% year over year
- Outpatient revenue is leading growth, increasing 7.2%
- Expenses are nearly keeping pace, rising 5.7%
- Supply and drug costs are a major driver, up 7.6%
The result: little meaningful margin recovery.
The pain is not evenly distributed. Smaller hospitals are taking the biggest hit, with facilities between 26 and 99 beds seeing margins drop 3.5 percentage points year over year, while larger systems (500+ beds) actually saw modest improvement.
The hidden problem: Revenue leakage is accelerating
Even more concerning is what is happening inside the revenue cycle.
A new report from Kodiak Solutions found that hospitals lost $48.4 billion in revenue in 2025, a 25% increase from the prior year.
That leakage is being driven by two main factors:
Rising claim denials
- Median final denial rate increased from 2.5% to 2.7%
- Clinical denials (prior auth, medical necessity) are the primary driver
- Denials are becoming harder to overturn, with success rates declining
Increasing bad debt and patient responsibility
- Bad debt rose from 1.1% to 1.3%
- Patient responsibility increased from 6.8% to 7.3% of net revenue
- Collection rates on that patient responsibility dropped from 45.1% to 42.4%
In other words, providers are asking patients to pay more and collecting less of it.
Why this matters
For companies collecting on medical debt, several trends stand out:
- More accounts are being pushed downstream due to denial-related write-offs and unpaid patient balances
- Patient affordability challenges are increasing, making collections more difficult
- Denial complexity is creating larger balances, especially tied to inpatient and commercial claims
One key insight from the Kodiak data is that not all denials are equal. High-dollar inpatient claims and commercial payers drive disproportionately larger revenue losses when denied, amplifying downstream collection challenges.
What healthcare providers are being told to do
Revenue cycle leaders are focusing on:
- Tightening accounts receivable discipline
- Preventing denials earlier in the process
- Improving front-end patient payment workflows
At the same time, providers are being encouraged to invest in technology and AI that improves cash flow, reduces manual work, and strengthens revenue integrity.
Bottom line
Hospitals are improving operationally in some areas, but it is not translating into stronger financial performance. Rising costs, higher denial rates, and weaker patient collections are combining to create sustained pressure.
For the credit and collection industry, this environment likely means more volume, more complexity, and more financially stressed consumers, all of which will require more thoughtful, data-driven approaches to recovery.
