The piece explains how hospitals, especially in rural America, survive on more than patient care revenue, why the 340B Drug Pricing Program matters, and how policy choices dating back to the Affordable Care Act have pushed many community hospitals to the brink while exposing taxpayers and patients to risk.
New data from Trilliant Health makes a blunt point: patient care now produces only about a third of hospital revenue, so hospitals rely on grants, investments, device sales, real estate and discounts to stay solvent. “With the benefit of these non-operating revenue sources,” Trilliant said, “many nonprofit health systems with negative operating margins are able to achieve positive overall margins.” That diversification has become a practical lifeline.
The 340B Drug Pricing Program, created in the early 1990s, is central to that lifeline because it forces drug companies to provide steep discounts to eligible hospitals and clinics. For rural providers that often lose money on clinical services, 340B discounts and related revenue help stretch scarce resources and maintain access for low-income and underinsured patients.
The Affordable Care Act altered hospital finances in ways that mattered most to small, rural facilities. The law cut Medicare reimbursements, reduced uncompensated care payments and layered in compliance costs that disproportionately hurt hospitals operating on narrow margins. That combination accelerated closures where budgets were already tight, leaving communities with fewer local options for emergency and routine care.
Revenues from patients have ticked up from 2018 through 2023 aside from the pandemic year, but those gains haven’t kept pace with rising expenses. Major cost pressures are real and varied: clinical services where reimbursements lag often account for more than half of hospital expenses, and behavioral health care, for example, is paid at roughly 75 percent of cost. Those gaps force hospitals to cross-subsidize or seek non-clinical income streams to survive.
Supply chain and energy price shifts have also squeezed margins. A one-liter bag of saline cost about $0.46 to produce in 2010, rose to $1.07 by 2013, and many estimates put current costs near $2.00, illustrating how basic supplies have inflated. Meanwhile average hospital energy costs jumped from $3.16 per square foot in 2021 to $3.75 the following year, with utilities capable of eating roughly 10 percent of an annual hospital budget.
Hospitals are the single largest piece of U.S. health spending, representing nearly one-third of the total and roughly $1.6 trillion in outlays, and they employ millions of Americans. So when a large share of facilities report tiny operating margins or losses, the impact on local economies and access to care is immediate and tangible.
Trilliant found that in 2023, 39 percent of hospitals reported negative operating margins, and the largest group—22.1 percent—reported margins between zero and five percent. For most hospitals net patient revenue accounts for somewhere between twenty and forty-five percent of gross revenue, underscoring how dependent many institutions have become on other income streams to remain open.
If federal protections tied to the 340B program are weakened, the pressure on already fragile hospitals will increase and could shift costs to taxpayers if bailouts become the only option. Even Joe Grogan, a former White House policy adviser with ties to the pharmaceutical world, warned hospitals “are going to be under pressure” and the federal government “doesn’t have the money to shore up the community hospitals.” That blunt assessment underscores the stakes for towns that rely on a single hospital.
Rural communities do not want federal rescue as the default plan; they want practical, policy-driven solutions that keep local hospitals open and accountable. For many facilities, that means preserving discount programs, ensuring fair reimbursement for essential services, and reducing regulatory burdens that raise costs without improving patient outcomes.
From a Republican perspective, the history matters: policy choices from both parties have shifted incentives in healthcare, but conservative policymakers can—and should—focus on restoring incentives that keep community providers solvent and reducing burdens that force hospitals to chase non-clinical revenue. Keeping local hospitals functioning is both a matter of local liberty and practical governance.
Absent discounts and outside revenue sources, a significant number of facilities that depend on diversified income would be forced to close, leaving entire regions with no nearby hospital access. That outcome would harm patients, strain remaining systems, and create economic stress in towns that already struggle to retain services and jobs.
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