Health system margins dropped below 1% for the first time in 15 months, according to Strata’s Healthcare Performance Trends Report.
Operating margins narrowed slightly in March after being at 1% in January and February. In December, health system operating margins were 2.1%. Many factors contributed to the shrinking margin, including a 7.4% increase in hospital expenses and 9.1% increase in total non-labor expenses. The geopolitical landscape could deepen financial challenges over the next month as well.
“Healthcare leaders across the country anticipate tariffs on foreign importers could result in higher costs for drugs and medical supplies, including everything from gowns and gloves to syringes and surgical instruments. About 70% of medical devices used in the U.S. are manufactured exclusively outside of the U.S. and are therefore subject to tariffs ranging from 10% for goods from most countries to as much as 245% for certain goods from China, including syringes,” according to Strata.
Tariffs on foreign made pharmaceuticals would increase drug costs for health systems. After analyzing the data on drug and medical supply growth, Strata found the three hospitals most likely to have higher medical supply costs are:
- Anatomic and clinical labs
- Invasive cardiology / catheterization labs
- Operating rooms
Non-pharmacy departments with the highest drug costs include internal medicine, neurology and family medicine.
The report also examined the impact of Medicaid on hospital financials, finding an increase in bad debt and charity care. Medicaid accounts for 12% of revenue for most hospitals nationwide, according to Strata, with hospitals that have more than $1 billion in revenue also having the highest percentage of revenue driven by Medicaid.
