Hospital margins improve to 1.4%

The median year-to-date operating margin index for hospitals improved to 1.4 percent in June, according to Kaufman Hall's latest "National Flash Hospital Report," which is based on data from more than 1,300 hospitals.

Fiscal year-end accounting adjustments contributed to a slight increase in performance, but most hospitals underperformed in June as high expenses and economic headwinds persist, according to the report. As margins appear to stabilize on the surface, the gap between high-performing hospitals and those that are financially struggling may be widening.  

However, financial challenges — such as the rising costs for labor, drugs and supplies — have begun to stabilize, allowing health systems time to implement strategies to return to profitability, according to Kaufman Hall. 

The proportion of full-time equivalents per adjusted occupied beds also decreased 8 percent from May, suggesting higher levels of workforce reductions and staff turnover as hospitals start taking the steps needed to survive, according to Kaufman Hall.

Physician and provider productivity for medical groups is also in the rise, with net patient revenue per provider FTE up 10 percent from a year ago, as patients increasingly seek care in outpatient settings, Kaufman Hall's "Physician Flash Report" found. But this increase was not enough to offset rising expenses as the median investment/subsidy per provider rose 5 percent year over year to $224,243. Total direct expense per provider FTE hit $611,519 in the second quarter, a 4 percent year-over-year increase. 

"This 'new normal' is an incredibly challenging environment for hospitals," Erik Swanson, senior vice president of data and analytics with Kaufman Hall, said. "It's time for hospital and health system leaders to begin developing and implementing a strategy for long-term sustainability, including expanding their outpatient footprint and re-evaluating where finite resources are being utilized."

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