GRAND FORKS — Profit margins in hospitals nationwide have fallen into the red and in 2025, Grand Forks-based Altru Health System was no exception, a system official said.

But expenses incurred by Altru’s new hospital, which opened in January 2025, help explain the dip.

For the calendar year 2025, the health system reported a negative-1.4% operating margin, reflecting the performance of the entire organization, not only the hospital. The national average hospital and health system operating margins closed 2025 at 1.3%, as tracked by Kaufman Hall, a prominent healthcare-focused consulting, financial advisory and performance management software firm.

“While the operating margin for 2025 was negative, this was due in large part to expected expense associated with opening the new hospital,” said Derek Goebel, Altru’s chief financial officer. “Cash flow generated from operations in 2025, which differs from operating margin, was a positive $7.2 million, allowing the reinvestment into the organization and community.”

Altru sought no new loans in 2025, Goebel added.

Healthcare systems and hospitals are pressured by a rise in total expenses, which have climbed about 8% year over year, with supply and drug costs up roughly 13%, according to Kaufman Hall.

“Operating margins can fluctuate from year to year based on a variety of factors, including inflation and other economic pressures affecting healthcare organizations and businesses across the country,” Goebel said. “Most recently, Fitch (Ratings) affirmed Altru’s bond rating and maintained a stable outlook, reflecting the strength and stability of our financial position.” (Fitch publishes credit ratings that reflect the levels of risk for default and influences lenders’ loan-making decisions.)

“When we generate a positive operating margin, any excess cash generated from that margin is reinvested into the organization,” Goebel said. “So since we’re nonprofit and community owned, we don’t have shareholders (and) no one draws against the business as would a for-profit. So we use that to invest in capital, to recruit, to give raises, to expand — but ultimately to reinvest into the community.”

Financial figures are publicly available.

In 2020, the onset of the COVID-19 pandemic proved a significant disruption to the healthcare industry nationwide.

In the wake of the upheaval caused by the pandemic, Altru chose to delay construction of the new hospital, and the community witnessed the sudden departure of a few high-level executives.

However, five years ago, Altru compared favorably in relation to the national average for U.S. health systems, the Grand Forks Herald reported, with an operating margin of 3.6% in 2021. In 2022, Altru ended the year with a 0.8% operating margin.

In 2022, nationwide, hospitals saw an average operating margin decline from 2.5% to negative 0.5%, the largest single-year decline on record, according to Joshua Deere, Altru’s president.

The national figure represented a remarkable drop, “at least in the most recent several years,” he said. “2022 was one of the worst years on record for hospitals nationally.”

The COVID pandemic was definitely a factor, Goebel said, “and then there was a fairly steady decline in national performance pre-COVID — so 2018 and ‘19. And then COVID, in effect, sort of threw everything out of sequence.

“There was some support that came in via the CARES (Coronavirus Aid, Relief and Economic Security Act) dollars to lift hospitals and keep hospitals viable as we worked through the pandemic,” he said. “And then as those dollars dropped off, really, that trend just continued. And so 2020-2021 was the COVID period, if you will. 2022 was really just a continuation of declining performance nationally.

“It’s improved from 2022, but not anywhere near pre-COVID. And, to me, that’s the biggest factor for national healthcare, is that we can’t get back to pre-COVID (levels) — just those inflationary factors that are put upon us really continue to pressure margins.”

Goebel explained that “if the industry overall or individual organizations aren’t able to reliably generate a positive margin, then they’re not able to continue to reinvest in the community that they serve, and so you end up in a situation (where) you’d have aged buildings and facilities or maybe you’ve got limited ability to recruit new specialties and things of that nature because you don’t have that generated margin.”

Internal deliberations have led to the cessation of certain services that have been offered at Altru for years.

In recent months, the health system closed its eye department and discontinued its Home Health Services unit, while offering assistance to help patients find other providers to continue necessary care without interruption.

Those closures “were not because of our 2025 operating margin,” Goebel said. “At Altru, we continually evaluate our services to ensure we are providing high-quality, sustainable care that best meets the needs of our patients and communities. In these instances, the services were no longer sustainable, and other organizations were able to continue to serve the needs of the patients.”

Financial pressures impact an organization’s economic stability.

Inflation in the healthcare sector hovers between 12 and 15% higher than the national rate of inflation, Goebel said.

“The biggest couple of factors on inflation are pharmaceutical and medical supplies. Pharmaceutical inflation nationally is double digits and that’s true for us in North Dakota as well.”

“Pharmaceutical companies are doing pretty well in their margins — and, of course, that’s at the expense of patients and providers,” he said.

Financial support, in the form of federal Medicare reimbursement, has not increased substantially in recent years.

“Our reimbursement model in U.S. healthcare is largely flat, meaning it’s a fixed-fee reimbursement,” Goebel said. “And so Medicare says, ‘here’s what we will pay you, regardless of what that pharmaceutical or supply might cost.’”

“What I mean by ‘flat,’” he said, “is (that) it doesn’t change based on the supply or pharmaceutical that’s used. So the hospital ultimately has to absorb that inflation.”

Summing up the current state of the healthcare environment nationwide, he said “it’s a complicated industry.”