Hospitals show more signs of recovery, but margins remain modest

Hospitals are continuing to see some modest gains in their long recovery during the COVID-19 pandemic.

Hospitals and health systems enjoyed improved operating margins in November, according to the National Hospital Flash Report released Tuesday from Kaufman Hall, a healthcare consulting firm.

The median calendar year-to-date operating margin index for hospitals was 2% in November 2023. In addition, hospitals saw revenue improvements for both inpatient and outpatient care, compared to November 2022.

As hospitals start to see some gains, they need to look ahead for growth opportunities, says Erik Swanson, senior vice president of data and analytics with Kaufman Hall.

Critically, health systems need to do more than find other ways to cut costs, Swanson suggests.

“As performance indicators stabilize, hospitals should take advantage of the relative stability and re-embrace strategic growth if they hope to see continued success in 2024,” Swanson said in a statement. “Growth strategies may vary from hospital to hospital, but all leaders should ensure that they are supporting goals beyond just profitability and scale, including business model transformation and diversification.”

Leaders should ask if their organizations are essential in their market, and look at ways to strengthen their position, Kaufman Hall suggests in the report.

Looking at data from November, outpatient revenue was 9% higher than November 2022, while inpatient revenue rose 5%, year over year. Health systems have been seeing greater growth in outpatient revenue, as more patients choose treatment options that don’t involve staying in the hospital.

Operating room minutes rose 2% from October to November, and were 4% higher year-over-year.

Labor expenses rose 1% from October to November, and they were 2% higher than November 2022. Non-labor expenses have been ticking upward at a higher rate than labor costs. In November, non-labor costs rose 3% compared to October, and were 5% higher than November 2022.

While hospitals have seen some gains, many organizations continue to see volumes lag behind pre-pandemic levels, and they’re encountering more battles with insurers over payments.

Some analysts have projected that hospitals and health systems will continue to see a tough road in 2024, as the recovery from the pandemic has been longer than some have expected. Fitch Ratings has said that nonprofit hospitals should expect another challenging year in 2024, and S&P Global Ratings says the outlook for hospitals is negative.

“There's no V-shaped recovery here, there's no ticker tape parade, nothing like that,” Kevin Holloran, senior director for Fitch Ratings, told Chief Healthcare Executive® in a December interview. “We're still going to be really struggling for every dollar we make in the sector.”

Holloran and others say they expect to see gradual improvement in operating margins, but higher expenses mean hospitals shouldn’t expect to see huge gains.

Hospitals saw a 2% drop in the average length of stay from October to November, and length of stay fell 6% year over year, according to the Kaufman Hall report. Emergency department visits rose 1% from October to November, but they also dropped 6% year over year.

The National Hospital Flash Report utilizes data from more than 1,300 hospitals from Syntellis Performance Solutions.