Hospital operating margins hit a 12-month high of 7.6% in December, according to data from Kaufman Hall's "National Hospital Flash Report," but challenges continue to loom.
Over the last year, hospitals reported steady financial improvement as outpatient revenue increased and patient observation days dropped 13% from 2023 to 2024. Expenses increased but didn't outpace inflation on a volume-adjusted basis, according to the report, which was released Feb. 4. But bad debt and charity care increased, which Kaufman Hall partially attributed to fewer people on Medicaid after coverage protection enacted during the COVID-19 pandemic expired. Insurance companies also increased coverage denials, leading to challenges for hospitals.
"While it's encouraging to see continued stability in hospitals’ financial well-being over the past 12 months, historically slim margins indicate hospitals are not yet in a fully sustainable position," said Erik Swanson, senior vice president and data and analytics group leader with Kaufman Hall. "The uptick in bad debt and levels of uncompensated care provided by hospitals will be an indicator to monitor over the next several months. On the workforce front, we continue to see a competitive and tight labor market across the healthcare sector."
Hospital operating margins jumped 12% month over month and 3% year over year in December. However, they were still down 8% for 2024 compared with 2021, during the pandemic. Net operating revenue jumped 6% year over year in December and outpatient revenue was up 10%.
Expenses were flat month over month and increased 6% year over year in December. Compared with 2021, expenses jumped 17%. The expense increase was driven by year-over-year increases in:
- Labor expenses per calendar day: 5%
- Supply expenses per calendar day: 8%
- Drug expenses per calendar day: 8%
- Purchased service expense per calendar day: 9%