There is a number that reframes how you should read any nonprofit hospital's financial statements. Net patient revenue was a median of 29.9% of gross revenue across nonfederal short-term acute care hospitals in 2024, according to Trilliant Health.
Under a third. The rest comes from investments, grants, joint ventures, retail pharmacy, real estate, and other non-patient sources. For an institution whose tax exemption rests on a charitable healthcare mission, that is a striking ratio, and new research suggests the investment portion is growing in ways nobody is adequately watching.
The scale, and the shift
Nonprofit US hospitals collectively hold nearly $300 billion in investment securities, a 55% increase since 2010, with investment management fees rising approximately 85%, according to a new analysis published this month.
The composition matters more than the total. Portfolios have shifted toward higher-risk, less liquid alternatives such as private equity, venture capital, and hedge funds, with those complex and volatile instruments comprising larger shares over time. The researchers describe existing reporting and oversight mechanisms as insufficient for monitoring the associated financial risks.
The paper's framing is worth noting. Most scholarship on healthcare financialization examines how private equity and other financial actors treat hospitals as investment targets. This is among the first to document systematically how hospitals are actively engaging in financialization as investors themselves.
Why the liquidity logic breaks
Here is the structural contradiction, and it is the most important thing in this story.
Ratings agencies justify large hospital portfolios on liquidity grounds. Fitch describes the investment portfolio as providing a financial cushion to absorb unforeseen operating challenges that may lead to potential compression in operating margins. The key metrics lenders watch are days cash on hand and cash-to-adjusted-debt, both measures of how much a hospital can access quickly if things go wrong.
Private equity, venture capital, and hedge fund positions do not work that way. PE and VC commitments are locked up for years with limited redemption rights. Hedge funds impose gates and lockups, and typically restrict withdrawals precisely when markets are stressed, because that is when their own positions are hardest to exit.
So the assets increasingly filling the emergency fund are the ones least available in an emergency. A hospital facing a genuine crisis, a cyberattack halting billing, a Medicaid payment disruption, a regional volume collapse, needs cash in weeks. A private equity fund interest cannot become cash in weeks except at a punitive secondary-market discount.
The buffer function and the return-seeking function are pulling in opposite directions, and the portfolios are moving toward return-seeking. That trade may well be rational for a large system with genuinely surplus reserves. It is considerably less defensible for a smaller hospital where, as Fitch itself notes, lower-rated hospitals are less able to weather risky investments because they may rely on those investments to fund operations.
The 2022 experiment nobody designed
The clearest evidence of how much these portfolios now drive hospital finances came from a market downturn.
Researchers examined ten nonprofit health systems and found average overall profit margin fell from 9% in 2021 to negative 6% in 2022, while patient care revenue at those same organizations increased by nearly 1%. The margin collapse was driven by investment losses, not by anything that happened in the hospitals.
A fifteen-point swing in reported profitability, with the core business performing slightly better. That is what it looks like when investment returns become the dominant variable in a healthcare organization's financial results.
The reverse happened in 2024. Fitch noted rated nonprofit hospitals with early fiscal year closes flipped operating margins from negative 0.5% to positive 1.2% on average investment returns of 9.8%, translating to 20 additional days of cash on hand and 17 percentage points of cash-to-adjusted debt.
The sector's profitability, in other words, is substantially a function of the S&P 500.
The accountability problem this creates
Two things follow, and they sit uncomfortably together.
Nonprofit hospitals argue, often correctly, that operating margins are unsustainably thin. S&P Global's preliminary 2025 medians show a median operating margin of just 1.2%, and 39% of hospitals had negative operating margins in 2023. Government reimbursement genuinely does not cover costs at many institutions, and rural and safety-net hospitals face real distress.
But operating margin excludes investment income by construction. And median investment income as a share of net income across Fitch's 221 rated nonprofit hospital credits was 48.5%.
So the metric hospitals cite when arguing for higher reimbursement systematically omits roughly half of what makes them solvent. That is not deception, operating margin is a legitimate measure of the core business, and a system that cannot cover costs from operations has a real problem. But a debate conducted entirely in operating-margin terms is missing half the picture, and the extreme cases make the gap vivid: Ascension reported income from operations of about $105 million in 2018 while its investment return was $1.6 billion.
This is the substance behind long-running scrutiny from figures like Senator Chuck Grassley, who has pressed the IRS on whether nonprofits are meeting their charitable obligations given that tax exemption is granted in exchange for free and discounted care.
The fees deserve their own line
The 85% rise in investment management fees is easy to skim past and worth pausing on.
That money leaves nonprofit hospitals and goes to asset managers. It is not spent on patient care, community benefit, or charity care. For institutions exempt from taxation on the theory that their resources serve a charitable purpose, a growing stream of payments to Wall Street intermediaries is at minimum a question worth asking, particularly since fees on alternative investments run far above fees on index funds, and the shift toward alternatives is what drove the increase.
Whether the higher fees purchase better net returns is an empirical question that the research suggests is not well monitored. In institutional investing generally, the evidence that alternatives beat low-cost passive strategies after fees is contested at best.
Why this matters right now
The timing makes the risk concrete. Fitch's 2026 outlook for the sector is neutral, forecasting median operating margins between 1% and 2%, with management teams accelerating expense savings ahead of the One Big Beautiful Bill Act's reimbursement cuts, whose full effect begins after 2026. Fitch warned the outlook could revert to deteriorating if profitability declines or payer mix erodes.
So hospitals are heading into legislated Medicaid and reimbursement reductions with operating margins near 1%, meaning the investment portfolio will matter more, not less, as a buffer. And that buffer is simultaneously becoming less liquid and more volatile.
If a market downturn coincides with the OBBBA cuts landing, the two shocks hit the same balance sheet at once, and the assets meant to absorb the operating shock will be the assets that cannot be sold. That is not a prediction, it is a description of correlated risk that the current reporting framework does not surface well.
What would actually help
The researchers' conclusion, that oversight mechanisms are insufficient, points toward a modest and achievable fix rather than a dramatic one.
Nonprofit hospitals file Form 990s and issue audited financials, but portfolio composition, liquidity terms, fee structures, and the concentration of illiquid alternatives are not disclosed in a way that lets a community, a bondholder, or a regulator assess whether a hospital's reserves could actually be reached in a crisis. Requiring disclosure of what share of investments can be liquidated within 30, 90, and 365 days would answer the question that matters, and it would cost hospitals almost nothing, since they already track it internally for treasury management.
None of this argues that nonprofit hospitals should not invest. Endowments fund capital projects, smooth genuinely volatile operating results, and support the long-lived assets healthcare requires. The argument is narrower: an institution holding $300 billion in public trust, justified partly by a liquidity rationale, should be able to demonstrate that the liquidity is real. Right now, according to the people who looked hardest at the data, nobody can tell.