Margins remain below historical levels, but more hospitals and systems are reporting better earnings.
The gains are modest, but for hospitals that have been struggling financially, any improvement is welcome news.
Hospitals are seeing improved financial performance, according to the latest National Hospital Flash Report released Monday by Kaufman Hall, a healthcare consulting company.
Kaufman Hall says the median year-to-date operating margin index for hospitals reached 1.1% in August, up from 0.9% in July.
Yes, margins remain below historical levels, but more hospitals are seeing positive margins this year, Kaufman Halls. By comparison, 2022 was the worst year financially for hospitals in recent memory, with more than half of all hospitals reporting negative operating margins.
With margins inching upward, it’s time for hospital leaders to plan ahead, says Erik Swanson, senior vice president of data and analytics at Kaufman Hall. Some hospitals have postponed building and improvement projects through the COVID-19 pandemic, but health systems may want to consider undertaking some projects in the near future.
“This period of relative stabilization is the time for hospitals to re-engage in capital planning efforts,” Swanson said in a statement. “Hospitals may be feeling reluctant given the last few years, but those that wait may find themselves falling behind their competitors and missing out on key opportunities.”
Hospitals saw higher expenses in August, but they also enjoyed upticks in revenue to cover those costs, according to the report. Total expenses per calendar day rose 4% from July to August. Hospitals say month-over-month increases in supply costs (13%) and drug expenses (11%).
However, net operating revenue per day rose 8% from July to August, with outpatient revenue outpacing inpatient revenue, according to the report. Outpatient revenue per calendar day rose 12% from July to August, while inpatient revenue rose by 4% month-over-month. Hospitals have regularly seen stronger gains in outpatient revenue, as more patients look for options for treatment and procedure outside of the hospital.
Hospitals are seeing more consistent patient volume. Operating room minutes rose 14% from July to August, while emergency department visits rose 3% month-to-month. The average length-of-stay dropped by 4% in August.
While hospitals are doing better, some analysts continue to expect a slow recovery. Fitch Ratings recently projected that hospitals would continue to see relatively weak margins for the rest of this year and into 2024.
The American Hospital Association has cited the Fitch Ratings report, as well as studies from Moody’s and S&P, to illustrate the fact that hospitals are still rebounding from the financial difficulties of the COVID-19 pandemic. In a blog last week, the hospital association stated, “Hospitals and health systems are still recovering, and will need to be financially strong and healthy in order to keep their patients and communities healthy.”
Kaufman Hall also reported recently that there’s a growing gap between hospitals with financial strength and those that are struggling.
The latest report examines data from more than 1,300 hospitals from Syntellis Performance Solutions.