The study tested the relationship between budget variances and operating margin for 115 acute care hospitals in Washington state over 27 years. The results showed that smaller unfavorable budget variances are associated with greater operating margins, while greater favorable budget variances also lead to greater operating margins. Specifically, a single standard deviation reduction in unfavorable expense budget variances increased operating margins by 6.3%, while an equivalent favorable variance increased operating margins by 2.7%. The study concludes that budgets do matter for hospital profitability, and managers can improve margins by reducing unfavorable variances and increasing favorable ones.