Large increases in bad debt and charity care deductions during the first quarter of the year have resulted in hospitals and health systems seeing a notable rise in uncompensated care, according to the latest performance trends report from Strata.
U.S. health systems saw a more than 20% increase in charity care deductions from Q1 2023 to Q1 2025. The median charity deduction for health systems nationwide increased 5.4% from Q1 2024 to Q1 2025, and jumped 21.4% versus the first quarter of 2023.
Bad debt deductions also rose over the same periods. The median health system bad debt deduction increased 9.2% from Q1 2024 to Q1 2025 and 16.9% versus Q1 2023.
For hospitals, charity deductions for the first quarter of this year rose 7.6% from Q1 2024 and jumped 24.5% compared to Q1 of 2023. Bad debt deductions at hospitals actually decreased slightly at 0.9% from the first quarter of 2024 to Q1 of this year, but were up 15.3% compared to two years ago, in Q1 of 2023.
WHAT'S THE IMPACT
The report also examined the costs of drugs and medical supplies, with health leaders anticipating that tariffs on imports could lead to higher costs.
About 70% of medical devices used in the U.S. are manufactured exclusively outside of the U.S. and are therefore subject to tariffs ranging from 10% for goods from most countries worldwide to as much as 245% for certain goods from China, including syringes, the report found.
Even without the tariffs, non-labor expenses have long been on the rise for hospitals nationwide, with total non-labor expense increasing year-over-year (YOY) each month for more than three years, according to the data.
Medical supply and drug expenses in particular have steadily grown as a share of overall expenses in recent years. Medical supply expense as a percent of total expense increased from 7.2% in Q1 2023 to 8% in the first quarter of this year. At the same time, drug expense as a percent of total expense rose from 4.1% in Q1 2023 to 4.4% in Q1 2025.
Medical supply and drug expenses also are increasing on a per-patient basis. Medical supply expense per adjusted patient day rose 6.7% from $194.04 in Q1 2023 to $207.11 in Q1 2025. Drug expense per adjusted patient day increased 8.4% from $99.73 to $108.07 over the same period.
Among non-pharmacy departments, internal medicine, neurology and family medicine incur the highest drug costs, data showed.
THE LARGER TREND
The report also showed that health systems saw operating margins narrow slightly to close the first quarter, dropping below 1% for the first time in 15 months. The median year-to-date (YTD) health system operating margin decreased to 0.9% in March, after holding steady at 1% for both January and February following a drop from 2.1% in December 2024.
The last time the median YTD health system operating margin was below 1% was in December 2023, when the metric was also 0.9%.
Jeff Lagasse is editor of Healthcare Finance News.
Email: jlagasse@himss.org
Healthcare Finance News is a HIMSS Media publication.