High labor costs are continuing to weigh heavily on hospitals and health systems, despite relatively stable financial performance over the past year, according to Kaufman Hall’s latest National Hospital Flash Report and Physician Flash Report, which cover data through September 2024.

Labor expenses accounted for 84% of total costs for medical groups, with the median subsidy per employed physician reaching $304,312. The reports also noted a 3% year-over-year increase in provider and physician compensation per full-time employee.

"Investment per physician rose above $300,000 for the first time — a sign that current models of physician employment are not sustainable,” said Matthew Bates, managing director and Physician Enterprise service line leader with Kaufman Hall. “Revenue is increasing, but physicians and providers are working more while generating less revenue. Health systems need to rethink operations to align the costs of provider employment with the current health care environment.”

September data in the National Hospital Flash Report suggested financial stabilization among hospitals, although volume and operating margins showed slight decreases compared to the previous month. Inpatient revenue rose alongside average patient lengths of stay, hinting at an increase in high-acuity cases. In contrast, outpatient revenue saw a minor decline, emphasizing a shift toward more intensive inpatient care.

"Two data points to monitor in the months ahead are inpatient revenue and average lengths of stay," said Erik Swanson, senior vice president and Data and Analytics group leader with Kaufman Hall. "Both metrics increased this month, which indicates that hospitals are treating more high-acuity patients. If this continues, organizations will need to contain expenses."

The reports are based on extensive data, with the National Hospital Flash Report drawing from over 1,300 hospitals and the Physician Flash Report from more than 200,000 providers, sourced through Syntellis Performance Solutions, now part of Strata.

Kaufman Hall, a management consulting firm based in Chicago, has provided strategic financial and operational consulting services to healthcare and other foundational institutions since 1985.

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