C-suite executives representing many of the nation’s largest health systems reported that their organizations are experiencing increasing stabilization across financials, patient volumes, and their workforces, as reinforced by year-end healthcare market data from Strata Decision Technology. This newfound stability represents a much-welcome shift after years of grappling with the reverberations of the COVID-19 pandemic.
As the industry stabilizes, healthcare leaders are realizing they have the capacity to make new investments to grow and diversify their organizations. In doing so, however, they recognize that their organizations cannot be everything to everybody, and they’re taking a measured, data-driven, and strategic approach in determining where to make those investments.
Year-end data reflect stability that is fostering a true post-pandemic frame of mind
Listening to industry leaders from across the country speak at the conference, one thing was resoundingly clear: They are ready to put the pandemic very much behind them, both emotionally and financially. Organizations have broken free of pandemic-related uncertainties and are ready and eager to operate in a post-pandemic mindset.
They have good reason to be optimistic. We have seen increasing stabilization in hospital and health system performance metrics throughout 2024, as shown in Strata’s proprietary healthcare financial and operational data.
After significant volatility from 2020 through 2023, hospital and health system operating margins largely stabilized in 2024. The median year-to-date (YTD) operating margin for hospitals nationwide held above 4.5% each month throughout the year, while the median YTD operating margin for health systems held above 1.5% over the same period. For all of 2024 versus 2023, the median change in hospital operating margin was up 1.5 percentage points, and the median change in operating earnings before interest, taxes, depreciation, and amortization (EBITDA) margin was up 1.2 percentage points.
Patient volumes also showed improvements in the final months of 2024, with inpatient admissions rising 4.5% and outpatient visits up 6.3% from December 2023 to December 2024.
Looking at hospital revenues, December marked the 20th consecutive month of year-over-year increases in gross operating revenue (up 8.5%), inpatient revenue (up 4.7%), and outpatient revenue (up 10.2%). For all of 2024 versus 2023, gross operating revenue for the year was up 7.5%, inpatient revenue increased 6.1%, and outpatient revenue jumped 8.0%. Compared to 2022, the metrics were up 16.9%, 8.3%, and 18.7%, respectively.
At the same time, hospitals continue to contend with rising expenses. Total hospital expense for the full year rose 5.4% from 2023 to 2024, total labor expense increased 4.2%, and total non-labor expense was up 5.8%. Even with rising expenses, hospitals saw their balance sheets stabilize throughout the year. From 2023 to 2024, the median year-over-year change in days cash on hand was nearly flat, rising just 0.13%.
At the height of the pandemic, healthcare organizations faced unprecedented workforce instability. Many were forced to rely on high-cost contract labor to fill their ranks as they experienced high patient demand amid widespread workforce shortages. In the years since, organizations have made significant investments in retention strategies to ensure they have a viable workforce. Those investments are showing dividends as organizations have significantly reduced turnover rates and reliance on contract labor.
The median change in contract labor expense dropped 22.7% from 2023 to 2024. Compared to 2022, the metric was down 42.8%. According to the latest data available, staff turnover was down 1.3% for the 12 months ending in September compared to the prior 12 months.
Renewed freedom to invest in the future
As stability spreads, healthcare organizations are looking at ways to advance in a much more stable business environment. Healthcare leaders at the conference expressed rising confidence that their organizations can move forward in ways that they could not previously. As a result, we anticipate there will be a return to a higher velocity of capital spending in the healthcare sector.
Many organizations represented at the conference are pursuing a variety of partnerships, including technology partnerships, joint ventures, and revenue cycle or supply chain collaborations with other health systems. Such partnerships allow them to create scale without the need to pursue a full-on merger.
While they are optimistic, healthcare leaders are being pragmatic as they consider where to invest and how best to grow. Many understand that their organizations cannot offer all services to all people. Rather, health systems are taking a targeted approach to diversifying services and building on their strengths. In areas that may not be their greatest strengths, organizations are looking to partner with other entities that have more expertise to manage those functions.
One recent example is the partnership between OhioHealth and Compassus, an integrated home-based care services provider. Under the deal finalized in September 2024, OhioHealth significantly scaled back its direct management of home health and hospice services. Compassus, which has extensive experience in home-based care, now manages four home health facilities and three hospice locations previously owned and managed by OhioHealth.
Expanding ambulatory care services continues to be a major focus, as hospitals and health systems engage in ongoing shifts in care from inpatient to outpatient settings in response to mounting patient demand for more convenient, lower cost care. Health system leaders recognize that investing in different types of care settings — such as ambulatory surgery centers — is critical to remaining competitive.
Organizations also are looking to invest in new technologies, such as artificial intelligence, and automation to decrease administrative workload on their clinicians and allow more time to focus on patient care.
Conclusion
After weathering the turbulence and uncertainties of the pandemic, healthcare leaders are cautiously optimistic about the road ahead. They are thinking strategically in terms of how to grow their organizations to build stability and better serve their communities long term. Achieving this requires the ability to make decisions in a timely manner, backed by robust and reliable internal and external benchmarks.
As they pursue new growth strategies, healthcare leaders will need to ensure their organizations have the data and insights needed to understand how their organizations fit into the broader market, identify strengths, and reveal opportunities for improvement. They need modeling and forecasting capabilities to anticipate trends and determine how best to navigate market shifts. Having these capabilities sets organizations up for success as they pursue emerging growth opportunities in a more stable business environment in 2025.
Steve Wasson directs Strata’s data and intelligence strategy. With a focus on innovation, he propels the company’s portfolio and our its customers to accelerate value through data, artificial intelligence, and machine learning.
Prior to joining Strata, Steve led Data & Intelligence Solutions at Syntellis Performance Solutions. He also served as General Manager for Connected Analytics & Capacity Management at Change Healthcare, and Vice President of Clinical Solutions at RelayHealth. Steve has led businesses through significant transformation and growth, delivered differentiating solutions, and applied the power of data across various sectors — with a primary focus on healthcare technology.
Steve holds a B.S. in Economics from Bloomsburg University of Pennsylvania, and an Executive M.B.A. from San Diego State University.
