Hospitals headed into the summer on slightly weaker financial footing, as operating margins narrowed, outpatient revenues declined and expenses continued to rise — most notably for prescription drugs, according to Kaufman Hall’s “National Hospital Flash Report,” published July 10. The May data, drawn from more than 1,300 hospitals, points to softening patient volumes and growing cost pressures that could pose significant challenges for hospital performances in the second half of the year.
“Volumes, margins and expenses are down slightly, yet hospital performance remains largely stable,” Erik Swanson, managing director and leader of Kaufman Hall’s data and analytics group, said in a news release. “The outlier is prescription drug expenses, which increased notably. Hospitals must carefully consider how to manage their drug spend.”
Five things to know:
1. Operating margins dipped after early-year gains. While hospitals saw strong margin performance earlier in the year, May brought a decline. The median monthly operating margin index dropped to 2.2% in May, down from 2.5% in April and 3.1% in March. Month-over-month performance weakened across many regions, with the Great Plains and Northeast/Mid-Atlantic posting some of the sharpest operating margin declines.
2. Outpatient revenues dropped more sharply than inpatient. For the first time in several months, outpatient revenue per calendar day declined more significantly than inpatient revenue. Adjusted data show:
- Outpatient revenue dropped 4% month-over-month in May and was up just 6% year over year
- Inpatient revenue increased 5% year over year in May
These trends signal waning outpatient demand and could pose challenges for hospitals that rely heavily on ambulatory services, according to Kaufman Hall.
3. Hospital volumes are trending downward. May saw declines across nearly all volume indicators:
- Discharges per calendar day fell 1% month over month
- Adjusted patient days decreased 3%
- Operating room minutes dipped 6%
- Emergency department visits dropped 1%
- Average length of stay remained flat
4. Drug expenses are surging. Pharmaceutical costs remain a key pressure point for hospitals. Drug expenses per calendar day increased 9% month over month in May and 11% year over year. When compared to year-to-date 2022, drug costs were up 25%, according to the report, which cites an aging population and greater use of specialty drugs as primary contributors for the cost surge. Kaufman Hall expects this trend to persist as care continues to shift to complex, high-cost pharmacologic interventions.
5. Labor remains stable, but expense pressures persist. Labor expenses stayed relatively steady in May: Labor cost per calendar day declined 2% month over month while full-time equivalents per adjusted occupied bed rose 2%. Labor expenses per adjusted discharge rose 1% month over month and 4% year over year, according to the report.
