Health systems continue trend of stabilizing margins, remain vulnerable to recession or public health emergency

Press releases may be edited for formatting or style | May 05, 2023 Business Affairs
Hospital finances improved slightly in March as hospital leaders navigate high expenses and economic pressures, according to the latest data from Kaufman Hall.

Margins Razor Thin, but Stable
The median year-to-date (YTD) operating margin index for hospitals was relatively flat in March, showing slight improvement from February, according to findings in the latest National Hospital Flash Report. While margins continue to stabilize, they remain below pre-pandemic levels—leaving hospitals in a vulnerable position should a recession or new public health emergency arise.

According to the latest Physician Flash Report, physician and provider productivity is on the rise as patients continued to reengage and seek out care that was put off during the pandemic.

Patient Volumes Continue to Rebound
Outpatient volumes remained strong in March, while average length of stay decreased by 4%, hinting at a reduction in patient acuity. Hospitals face an ongoing bottleneck discharging to post-acute sites of care. Furthermore, workforce shortages still hamper hospitals' ability to treat patients admitted to their institutions.

“While it appears that hospital finances are stabilizing, that doesn’t mean that all is well,” said Erik Swanson, senior vice president of Data and Analytics with Kaufman Hall. “Under the seemingly calm surface, there are significant challenges—especially labor shortages and diminished margins—that could quickly reach the surface should another crisis arise.”

Expenses Outpace Revenue Growth
Health systems feel the strain of inflation, particularly when it comes to labor and materials. Non-labor expenses including drug and supply costs rose by 6% from February.

With productivity on the rise, the total direct expense per provider full-time equivalent (FTE) rose to $611,317, a 17% increase compared to Q1 2022. Meanwhile, net patient revenue per provider FTE was $357,507 in Q1 2023.

Despite increased productivity and revenues in the first quarter of 2023, there was a 12% year-over-year increase in median investment/subsidy per provider FTE to $236,842—representing an increase twice the rate of inflation. Kaufman Hall experts say this is likely due to the increased costs of materials and labor.

“As labor pressures continue, we’re seeing more and more reliance on advanced practice providers—including nurse practitioners and physician associates,” said Matthew Bates, managing director and Physician Enterprise service line lead with Kaufman Hall. “Two of every three providers that will enter the workforce this year will be an advanced practice provider. Provider groups that hire, retain and deploy this corner of the workforce most effectively will see the most success in the long-term.”

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