Using margin analysis to strengthen healthcare operations

Physician and clinical services like infusion, behavioral health, dental, and specialty care account for nearly 20% of U.S. healthcare spending. The sector is expansive, essential, and growing fast. Yet for most-mid-sized practices, that growth is shadowed by rising costs, staffing shortages, and operational challenges.

With multiple locations and service lines, understanding your true profitability is the key to stability, smarter resource allocation, and sustainable growth. Margin analysis in healthcare reveals hidden inefficiencies and enables data-driven decisions that create measurable value.

Why Margin Analysis Drives More Strategic Healthcare Decisions

Operating margins are the backbone of performance. They show whether a healthcare practice can cover its costs and still reinvest in people, technology, and future growth.

Despite their importance, many practices only review margins annually, if at all. With reimbursements tightening and expenses surging, an annual approach is no longer enough. Leaders need real-time visibility into performance across locations, services, and payers to make informed decisions.

Margin analysis empowers healthcare organizations to:

• Identify true profitability across service lines, specialties, and locations
• Manage expenses by pinpointing inefficiencies in labor, supplies, and contracts
• Refine prices to reflect value while remaining competitive and accessible
• Allocate resources to the most productive areas
• Plan for expansion based on real financial strength
• Drive accountability and transparency to leadership to make sound operational decisions
• Support valuation and private equity strategy through improving EBITDA

Without this insight, companies risk making decisions based on assumptions, investing in underperforming services, and missing opportunities to scale.

For information on strategic market positioning and how benchmarking fuels smarter business decisions, read our related insight.

Real-World Example: Turning Data into Deal-Ready Decisions

A growing multi-specialty healthcare practice with over a dozen physicians and multiple locations was preparing for a sale but lacked financial clarity around profitability by doctor, location, or specialty. When the leadership team engaged an investment bank, they were told the business couldn’t be taken to market until the financials were in order, an exercise that delayed their plans. In short, they weren’t deal-ready.

By segmenting financial data by provider and service line, the practice uncovered data that showed infusion services (previously lumped into general revenue) were driving a disproportionately high margin. This insight helped them identify ways to optimize operations and position infusion services as a key selling point for private equity buyers.

With a clear understanding of profitability, the practice was able to restructure its reporting and move forward with a successful sale.

Click here for the full case study.

Real-Time Visibility Beats Rear-View Reporting

Healthcare organizations often continue to rely on archaic systems to track important data. Many have not optimized their reporting, leading to delays in delivering financial statements and key performance indicators (KPIs). This lack of urgency can lead to compounding issues that don’t get addressed until it’s too late—when expenses have exceeded budgets, overtime has been paid, and other variable costs have disrupted cash flow and profitability.

Real-time dashboards can change the game.

When operational leaders have access to integrated, up-to-date financial and clinical data, they can act accordingly in real-time by:

• Adjusting staffing levels before burnout or budget overruns occur.
• Renegotiating supply contracts based on current usage trends.
• Monitoring department-level performance and correcting course quickly to protect margins.

For more information on how a management reporting system transforms decision-making for healthcare entrepreneurs, read our related insight.

What Is a "Good" Margin in Healthcare?

There is no single benchmark for a “good” margin across healthcare in general. A mature urgent care clinic might operate efficiently at 15%, while a well-established dental group might aim for 30–40%. What matters most is whether your margin can sustain your business model, support future growth, and absorb risk. That answer depends on your stage of growth, payer mix, and operational efficiency.

Benchmarking can provide helpful context, but only if applied carefully.

Too often, practices compare themselves against industry averages without accounting for key variables. Consider:

• Are you calculating margins the same way as your benchmark source?
• Are you factoring in one-time costs or ongoing capital investments?
• Are you in growth mode or a steady-state phase?

For example, an oral surgery group in expansion mode may show thinner margins than the average for general dental offices, but those higher fixed costs and startup investments may lead to outsized returns over time.

We Can Help

At Elliott Davis, we help organizations understand their true profitability. Our team works with customers to build margin dashboards, define KPIs, capitalize on cost-saving opportunities, and develop pricing models rooted in real performance data.

We also help align teams to break down silos and enable cross-functional discipline across budgeting, planning, and execution.

When margins are under pressure, the smartest investment is visibility. Let us help turn your data into decisions. Contact us today to get started.

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