The median profit margin of U.S. hospitals increased from near zero in the third quarter of 2008 to more than 8 percent in the second quarter of 2009, according to an analysis of hospital financial performance published Monday by Thomson Reuters.
The study claims that economic recovery has been broad-based, with all classes of hospitals – small, medium and large community hospitals, teaching hospitals and major teaching hospitals – showing positive median margins.
The study tracks two dozen key financial indicators, using proprietary and public data to dissect the balance sheets of more than 400 hospitals nationwide. It evaluates trends in revenue and profit, employment levels, closures, inpatient volume, days cash on hand and case mix to gauge the fiscal health of the nation's hospitals.
"U.S. hospitals are on track to come out of the recession in better financial shape than they were in when the downturn began," said Gary Pickens, chief research officer at Thomson Reuters and one of the study's authors. "When we published our first analysis of hospital economic health in the fall of 2008, hospitals were facing unprecedented economic stress and staring down a real crisis. Now, by taking aggressive measures to reduce costs, the majority of hospitals are positioned for a strong recovery."
The Thomson Reuters analysis found that median total operating margins were at 0.37 percent in Q3 of 2008. In Q2 of 2009, all classes of hospitals had positive operating margins, reaching an average of 8.4 percent.
Nevertheless, some hospitals are still suffering. In Q2 of 2009, about 20 percent of hospitals had negative total margins – which Pickens said is similar to the rate seen before the recession began in late 2007. This is an improvement from Q1 of 2009, when 30 percent of hospitals were operating with negative margins, and Q3 of 2008, when half of U.S. hospitals were operating in the red.
The study also revealed that hospitals' median days-cash-on-hand has increased significantly from 90 days in Q1 of 2009 to approximately 146 days in Q2 of 2009, higher than the historic long-term average.
Total hospital labor costs are down approximately 2.25 percent in Q2 of 2009. Pickens said this reduction in labor expense per discharge has been achieved by reduction of patient length of stay. Mean patient discharge volumes for all hospitals began declining shortly after the recession started – but moved into positive territory in Q209.