Hospital margins drop 11% month over month

Nonprofit hospital margins had a double-digit drop from December to January 2024, according to the Kaufman Hall National Hospital Flash Report.

Average operating margin and operating EBITDA margin were down 11% month over month, hitting 5.1%. The report also noted total expense and labor expense per calendar day increased 3% while supply expense and drugs expense per calendar day were up 4% and 6%, respectively.

The Northeast and Mid-Atlantic region had the sharpest operating margin drop at 19%, followed by the Midwest with 17% and Great Plains with 12% drops from December to January.

But operating margins had increased for the three months leading up to the new year, and were taking a broader view, hospital operating margins jumped 25% year over year in January. Operating EBITDA margin jumped 18% from January 2023 to January 2024, showing progress.

Some regions, the West in particular, experienced significant year over year growth. Nonprofit hospitals in the West on average reported operating margins 43% higher in January 2024 than the year prior.

Nonprofit hospitals need positive operating margins, and many are moving in that direction. Fitch expects to see a 1.6% increase in 2024 median operating margin, as patient volume remains below pre-pandemic levels and inflation continues to hit expenses. But in 2025-26, the ratings firm believes hospital margins could return to "near historic trends."

The report also noted personnel costs are dropping, providers have strong liquidity related to debt, and days cash on hand is 220, around pre-pandemic levels.

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