At the end of 2025, the average health system operating margin sat at 2.0% (according to Kaufman Hall’s National Hospital Flash Report). Say it with us… two percent. After the pandemic, the labor crisis, the inflation spike, and ongoing payer battles, margins hover around two cents on the dollar.
And last Fall, Fitch’s analysts called the sector “trifurcated.” Many systems are scraping by. A small group is in genuine trouble. But there’s a third group that enjoys true financial strength, carrying AA or Aa ratings from Fitch and Moody’s. This group seems to exist in a completely different financial reality.
In December 2025, Becker’s Healthcare shared a list of 87 health systems with strong financial positions. We’ve been thinking about this list ever since… and leaned into our inner nerd to analyze these systems’ markets, strategies, and finances.
So, what’s actually going on? What do financially strong systems have that the rest of the sector doesn’t?
Spoiler alert: it’s not luck (well, not entirely). It’s a combination of structural position and deliberate choices. Some of this can’t be controlled, but some of it is absolutely within leaders’ control. Let’s talk about both.
First, the real talk: some of it is not up to you
When it comes to the financial strength of a health system, yes, geography matters. Demographics matter. Whether your service area has a strong commercial employer base or skews heavily Medicaid—that matters more than almost anything else, because commercial insurance reimburses at roughly twice of Medicare rates for the same service.
State policy environment matters too. Whether you’re in a Medicaid expansion state, whether certificate of need (CON) laws protect your market, whether your state’s staffing mandates are adding cost or not—these are real financial variables that no leadership team controls directly. And the policy volatility is higher than ever.
So, it likely goes without saying that knowing what you are working with is the starting point for knowing where to invest.
But there’s good news. Within whatever structural hand you have been dealt, there’s a wide range of possible outcomes. And the systems pulling ahead right now are doing it by getting very specific, very disciplined things right.
1. Payer mix: the hardest fight and most important fight in healthcare
Every health system in the country is chasing commercially insured patients. Every. Single. One. Just last month, Advisory Board covered this issue in their Demystifying Healthcare podcast. Health systems are all running campaigns at roughly the same audience with roughly the same message. “Advanced care.” “Close to home.” “We are here for you.” Oof. The sea of sameness is egregious.
So how do you win this fierce battle?
Thankfully, it does not require outspending. It requires out-targeting and out-positioning your competitors. And that starts with data—knowing where the commercially insured patients in your market are actually going, which service lines they’re choosing, and what is driving those decisions. Is it access? Reputation? Convenience? Physician relationship? The answer is different in every market and for every service line. Without that intelligence, your commercial patient acquisition strategy is an expensive guess.
But data alone doesn’t close the deal. You also need to go upstream to employers. Employers make coverage decisions before a patient ever has the chance to choose. Which network is in-plan? Which system does HR talk about at open enrollment? Health systems that build proactive relationships with the major employers in their market—making the case directly, before the contract cycle, before the open enrollment meeting—are operating at a different level than those focused entirely on consumer campaigns. It is harder work, but the yield per dollar is often significantly higher than chasing individual patients one click at a time.
From there, your payer contract strategy needs to be grounded in demonstrated market position. One large regional health system we work with has spent years building that position deliberately: growing referral share, deepening physician relationships, expanding the ambulatory footprint in key corridors. When they sit down at the negotiating table now, they already have leverage. The contract outcomes are a downstream result of market work done years earlier.
2. Workforce retention: A critical balance sheet issue
Here’s a number that keeps CFOs up at night: nursing turnover costs an average of $61,110 per RN. Physician turnover is even more insomnia-inducing: depending on specialty, losing a single physician costs between $705K and $1.8M when you factor in recruiting, lost revenue during vacancy, onboarding, and ramp-up time.
BPD Healthcare’s research study with 283 healthcare professionals found that almost 40% of the workforce is at least somewhat likely to leave their jobs in the near future. Nurses and physicians are at the highest risk. And the reasons they leave are not primarily about pay. They leave when they no longer feel supported by their organization (and only two-thirds of healthcare workers say they do) and when they’ve lost sight of the connection between their work and patient impact.
Physicians deserve special attention here, because their disengagement shows up in referral patterns, care team dynamics, and eventually, the P&L. When physicians are engaged and aligned, referrals stay in-system, care patterns are consistent, and value-based contract performance improves. When they are not, volume leaks until it shows up in the financials six months later and everyone’s scrambling to figure out what happened. According to ECG Management Consultants, strong physician alignment is the top indicator of success for independent community health systems because physicians influence every part of the care continuum’s growth and effectiveness.
The systems making real progress here have figured out that culture is a financial strategy. Organizations in the top quartile of employee engagement see 23% higher profitability and 18% higher productivity (according to Gallup).
Ironically, the answer lies in your own people. The informal influencers already embedded in your teams—the charge nurses who reframe leadership decisions in terms their teams trust, or the respected physician whose public support of a new protocol gives others permission to follow. Most organizations don’t know who these people are. The ones that do, and activate them deliberately, see culture change move at the speed of trust rather than the speed of policy.
For a deeper look at how leading systems are rebuilding from the inside out (including what BPD’s research shows about what actually drives healthcare worker engagement), check out our latest paper, The Culture Reset.
3. Physician Referral Programs: the growth lever that is chronically underfunded
Most health systems have some version of a physician liaison program. But few treat it as a data-driven, strategically prioritized growth engine.
Physician outreach without data is just relationship management—which is important, but not predictable. Instead, the strategic systems start with referral intelligence: which physicians are sending which patients where, for which service lines, and why? Is it proximity? Ease of referral? A longstanding relationship with a specialist? The answer varies by specialty and by market. But you can’t optimize what you can’t see.
In theory, this is one of the most measurable marketing investments in healthcare. Conversion to referral, referral volume by physician, downstream contribution margin are all trackable metrics. But in practice, getting there requires genuine cross-functional alignment between marketing, strategy, operations, and finance. The data lives in different systems. The definitions do not always match. And the question of who owns physician relationship ROI (marketing, service line leads, the strategy team, physicians)… that seems to vary at every health system. But when the infrastructure exists, physician referral programs are legible growth investments.
4. Institutional trust: the advantage that takes years to build but is hard to steal
Here’s a finding from BPD Healthcare’s national consumer research that should make every marketing leader uncomfortable: 36% of Americans believe that what hospitals care most about is profits. Only 21% believe hospitals prioritize patient health. That is a volume problem, a physician recruitment problem, and a payer negotiation problem, all sitting inside a larger brand problem.
Institutional trust is explicitly woven into the financial strength of the best-performing systems. Moody’s linked Mass General Brigham’s Aa3 rating to its “outstanding reputation bolstered by research and philanthropy.” Fitch tied NewYork-Presbyterian’s AA to “a strong reputation that extends beyond the region.” Children’s Healthcare of Atlanta’s Aa1 is partly about “strong brand reputation.” Rating agencies are citing brand strength in credit reports.
Sit with that for a second… Typically, brand-building sits sidecar to the health system C-Suite. But in reality, brand is a financial strategy.
Brand shows up in payer leverage, because must-have networks can command higher rates. It shows up in physician recruitment, because top clinicians join institutions with reputations worth joining. It shows up in patient retention, because trust is the most powerful loyalty driver in healthcare, and loyalty is cheaper than acquisition every single time.
From an operations standpoint, trust is built through clinical excellence and community presence over time. But how you communicate, how clearly you articulate your value, how proactively you manage your narrative, how well you translate your distinct market position—all of that determines how fast that trust becomes a real competitive advantage.
And right now, with 64% of Americans saying trust in healthcare has declined in the last two years, the systems that are actively building trust are pulling away from the ones that assume it is coming automatically.
The bottom line
Let’s go back to the “trifurcation” Fitch describes. The 87 financially strong health systems are consistently running strategies that create and protect financial strength. Yes, some of it is the structural position they inherited. But a lot of it is earned through physician alignment, workforce stability, smart service line investment, and a market reputation that makes them the default choice when patients and physicians have one.
The gap between the strong and the struggling is widening. The good news is that the levers that close it are mostly knowable and mostly actionable.
What’s your next move?
For more discussion about the state of health system finances, join BPD Healthcare at Becker’s Healthcare 16th Annual Meeting in Chicago, IL. Our President, Jessica Schmidt, will be speaking on the panel “Navigating Financial Crosswinds for Sustainable Growth in Healthcare.”
https://bpdhealthcare.com/insights/events/beckers-healthcare-16th-annual-meeting/
BPD Healthcare works with health systems across the country on critical growth strategies, including brand strategy, patient acquisition, physician engagement, and market intelligence. Learn more about our services here.
