Healthcare conditions are improving, but not enough for hospital systems to stop drawing on their portfolios.
As margins remain constrained, institutional healthcare investors find that most health organizations are still relying on their long-term investment portfolios, even as some expected operating performance to recover more quickly. A Marsh survey of healthcare allocators finds reserve use is more persistent than expected, with investment portfolios remaining a key source of financial flexibility. Despite better operating conditions, 52 percent drew on investment reserves to support operations last year, but only 37 percent expected that the recovery would take so long entering 2025.
When a healthcare system draws on its reserves, it uses saved-up cash or investments to cover daily operating expenses, pay staff, or fund critical needs rather than rely solely on patient revenue or loans. Operating margins range from -11.4 percent to 16.5 percent, according to Marsh, and days’ cash on hand from 13 to 787 days.
Others in the healthcare investment advisory space report a similar trend. David Moore, a partner at NEPC who heads the advisory giant’s healthcare team, said he is “seeing clients increasingly relying on their operating pools for a source of liquidity.”
Marsh’s findings also align with what healthcare allocators are seeing. "There has been considerable dispersion in operating performance by region and credit rating, driven primarily by patient demographics,” said Mark Cagwin, SSM Health's V.P. of treasury and chief investment officer.
Cagwin added that while many systems outside the South and Southeast remain operationally challenged, teams from health systems in markets with strong demographic growth face a different challenge “where free cash flow is so robust that they can’t possibly invest the dollars quickly enough.”
Hospital expenses grew 7.5 percent in 2025, more than twice the 3.3 percent growth in prices, the American Hospital Association found. This leaves many hospitals operating at or just above breakeven, as more than half of costs — 56 percent — go to service lines that lose money, such as behavioral health, obstetrics, infectious disease, and burns and wounds.
While rising costs are pressuring margins, NEPC’s Moore added that the healthcare systems have become increasingly nimble in adjusting to changing market conditions.
Healthcare organizations are relying on liquidity that CIOs have specifically set aside for unexpected costs for operational costs because they are far more complex than foundations or pensions where liquidity needs can come at a moment’s notice. Donna Snider, CIO of Hackensack Meridian Health, told II earlier this year that healthcare is “a different animal, where needs can pop up unexpectedly.” Snider began her healthcare career as HMH’s first-ever CIO at the start of Covid.
