Beyond Budget Cuts: Rethinking Strategy in the Face of Margin Pressure

Hospitals across the country are facing a slow-burning emergency—one that rarely makes headlines, but is threatening the financial health of the entire system.

Margins have been under pressure for years, but the situation is becoming untenable. Kaufman Hall’s National Hospital Flash Report shows that while hospitals’ financials stabilized over 2024, there was an uptick in bad debt and charity care. Come 2026, CMS’s launch of the Transforming Episode Accountability Model (TEAM) has the potential to add fuel to the fire and threaten the razor-thin margins at which many hospitals are operating.

TEAM will be a five-year program that will force hospital leaders to rethink everything from labor strategy to care delivery.

So what’s driving the hospital margin crisis? And more importantly, what can be done about it to get ahead of the TEAM mandate?

What’s Driving the Margin Collapse?

A perfect storm of post-pandemic realities, economic pressure, and shifting reimbursement dynamics is bearing down on hospitals:

• Escalating labor costs: The shortage of nurses and skilled staff has forced hospitals to rely heavily on travel labor (sometimes at 2-3X the cost of full-time employees). Even as labor contracts normalize, burnout and retention remain major concerns.
• Supply chain instability: Equipment, drug, and services costs are up. Many hospitals still face delays and elevated prices on everything from surgical implants to cleaning supplies.
• Stagnant reimbursement: As commercial payers get more aggressive and Medicare/Medicaid payments remain fixed or shrink, hospitals are absorbing more of the cost burden without a proportional increase in revenue.
• Fragmented post-acute care: Poor coordination after discharge continues to drive up costs, increase readmissions, and erode patient outcomes—especially for surgical and high-risk populations.
• Regulatory pressure: The aforementioned TEAM will shift more financial risk onto hospitals. Many are unprepared to transition to the new payment model, let alone perform well under it.

The Operational Fallout

With revenue under pressure and expenses continuing to rise, hospitals are being forced into difficult tradeoffs:

• Service lines are being cut or consolidated.
• Infrastructure upgrades and tech investments are delayed.
• Clinical teams are stretched thin, driving morale and retention down.
• Some systems are being forced into M&A simply to stay afloat.

It’s a grim outlook, but it doesn’t have to be the end of the story.

Why Traditional Cost-Cutting Isn’t the Answer

It’s tempting to fight budget shortfalls with sweeping cuts. But slashing headcount or delaying innovation can cause more harm than good.

• Reduced staff means less time with patients, lower satisfaction scores, and higher burnout—creating a vicious cycle.
• In-house tech builds take time and resources hospitals simply don’t have right now.
• Generic cost-cutting often misses the areas where real savings can be found: fragmented specialty care, post-acute spend, and poorly coordinated transitions.

Hospitals need a new approach that addresses system-wide inefficiencies without undermining care or burning out teams.

Where Hospitals Can Meaningfully Regain Control

There are ways to relieve margin pressure without sacrificing quality or adding to your workforce:

• Focus on high-cost care episodes: Target areas like orthopedics, cardiac care, and complex GI procedures where costs (and variation) are highest.
• Improve coordination and adherence: Patients with multiple conditions or poor support systems often fall through the cracks. Handling them effectively reduces readmissions, lowers spend, and improves outcomes.
• Leverage bundled payment programs: TEAM presents risk for unprepared hospitals, but it also offers cost predictability and shared savings to those who can properly navigate the new model.
• Bring visibility to post-acute care: Many costs go unchecked after discharge. Real-time episode tracking and performance monitoring make it easier to stay on top of what’s happening and act early.

Lonr’s Approach

At Lonr Health, we understand that hospitals are operating under extraordinary pressure. Our role is to make your job easier and your margins bigger.

Our care management programs are specifically designed to tackle the most expensive and fragmented parts of the patient journey, starting with surgical episodes and post-discharge transitions.

Here’s what our partners have seen:

• 13.5% average MLR reduction
• 4% 30-day readmission rate (compared to the 10–15% national average)
• Fewer post-acute overages and better bundle performance
• No new hires required to stand up a scalable care navigation program

Our approach blends licensed care navigators with real-time data and technology to keep high-risk patients on track from pre-surgical planning through recovery. We support Medicare, ACO, and commercial populations, all with full CMS compliance built in.
And with TEAM going live in 2026, hospitals need partners who are ready to help now—not after the penalties hit.

Looking Ahead

The hospital margin crisis isn’t going away, but there are smarter ways to navigate it.

By focusing on the right populations, improving care transitions, and embracing proven value-based models, hospitals can improve financial performance while staying focused on better quality of care.

Let’s talk about how Lonr can support your margin strategy without overloading your team.