Hospital Operating Margins Stabilize Year-Over-Year, But Challenges Persist
Hospital finances have started the year on a positive note, with operating margins stabilizing and showing an increase compared to the previous year. According to Kaufman Hall’s National Hospital Flash Report for January, hospital leaders should continue to focus on optimizing healthcare delivery and the workforce to overcome the persisting challenges.
While overall hospital financials seem to be stabilizing, a closer look at the data reveals that not all organizations are experiencing the same level of stability. Erik Swanson, senior vice president of Data and Analytics at Kaufman Hall, explains that high-performing hospitals are thriving, while lower financial performers have stagnated or even seen their margins worsen.
The report highlights three key figures that shed light on the current situation:
1. 5.1%: The median calendar year-to-date operating margin index for January, which represents a slight decline from December but is higher compared to the same periods in 2022 and 2021. However, many hospitals operating at a loss are located in rural areas, according to a recent report by healthcare advisory firm Chartis. The report shows that 50% of rural facilities are currently in the red, up from 43% the previous year.
2. 1%: The month-over-month increase in net operating revenue per calendar day, which is overshadowed by the 5% gain in gross operating revenue per calendar day since December. Kaufman Hall suggests that this difference could be attributed to payers exerting their power in contract negotiations and a shift toward value-based payment models.
3. 3%: The month-over-month rise in labor expenses per calendar day, which is relatively low compared to the increases in supply expenses (4%) and drugs expenses (6%) over the same period. However, labor expenses have risen by just 4% year-over-year, indicating hospitals’ efforts to reduce contract labor.
Despite the progress made in stabilizing operating margins, hospitals still face challenges that need to be addressed. The report emphasizes the importance of adopting and implementing new technology as a long-term solution for profitability, even though the return on investment may not be immediate.
Furthermore, hospitals can tackle the issue of low reimbursement through strategies such as cost reduction and diversification of services. This is particularly relevant in the current healthcare landscape, where resources may be limited.
In conclusion, while hospital operating margins are stabilizing and showing improvement year-over-year, it is crucial for hospital leaders to continue pursuing strategies to optimize healthcare delivery and address the challenges that persist.
Analyst comment
Positive news: Hospital operating margins have stabilized and increased compared to the previous year.
Analyst: Hospital operating margins are expected to continue stabilizing as hospital leaders focus on optimizing healthcare delivery and addressing persisting challenges. Additionally, the adoption of new technology and cost reduction strategies can further enhance profitability.
