Photo: Issarawat Tattong/Getty Images
Hospital financial and operational performance could be threatened by a trend showing a growth in the cost of expenses outpacing that of revenue, according to a Kaufman Hall National Hospital Flash Report.
“While performance has generally been strong this year, profitability has decreased slightly over the past few months. Bad debt and charity care also continue to rise. In addition, operating margins for health systems are about one percent lower than hospital margins. This points to potential challenges for hospitals and health systems to weather future uncertainty,” said Erik Swanson, managing director and group leader, Data and Analytics, at Kaufman Hall.
WHY THIS MATTERS
What the report shows is that hospital performance has softened in recent months.
While patient volumes and revenues are trending upward, bad debt and charity care are also elevated.
Expense growth is outpacing revenue growth, with non-labor expenses putting pressure on hospitals. Supplies are up 26% compared to 2022, and drugs costs are up 31% compared to 2022.
Margins have improved over prior years, though there has been some softening in recent months. Given an uncertain future outlook, many hospitals are taking steps to build long-term resiliency, the report said.
Operating margins in August 2024 were 4.6% but fell to 5% in December 2024. Starting in January, margins jumped to 6.9% and remained in the 6.2% range until this past June, when they fell to 5.5% and in July, 5.3%.
Profitability is down from 48% in July 2024 to 27% this year.
THE LARGER TREND
Data for the report came from more than 1,300 hospitals sampled on a monthly basis from Strata Decision Technology.
The sample of hospitals for the report represents all types of hospitals in the United States, from large academic to small critical access hospitals, geographically and by bed size.
Kaufman Hall, a Vizient company, provides advisory services and management consulting.
Email the writer: SMorse@himss.org