Hospitals need more than 0% margins, AHA insists

The American Hospital Association is taking on a message that might be common sense to many but is a source of misconception to some: hospitals and health systems do not operate with a goal to incur financial losses. 

"Some analyses seem to suggest that anything above a zero percent margin is inherently bad, as though the operating goal of hospitals and health systems should be to incur financial losses," Bharath Krishnamurthy, director of health analytics and policy for the AHA, wrote. "This would be financially reckless and ignores the reality that hospitals and health systems need some margin to keep pace with new life-sustaining advances in medicine, help support their workforce and continue to keep their doors open to care for their patients and communities." 

The AHA's commentary about "margin misconceptions" arrives as the average hospital operating margin is seeing incremental improvement month over month. In April, the median year-to-date operating margin index for hospitals slightly improved to 0 percent, according to Kaufman Hall, which bases its findings on data from more than 900 hospitals. Most recently, in June, the median margin improved to 1.4 percent

The improvements come after a dire 2022, the worst financial year for hospitals and health systems since the start of the COVID-19 pandemic. Median monthly margins lingered in the red throughout the first 11 months of 2022, starting with the -3.4 percent recorded in January, driven by the COVID-19 omicron surge. 

As margins have neutralized and inched upward, the AHA is reminding the public that negative or break-even margins — while common over the past year — are not a new normal. Nor do meager improvements to margins mean hospitals' financial struggles are over, as states conduct Medicaid redeterminations and disenrollments among other headwinds. 

Also, medians are just that — medians, AHA points out. 

"The recent median margin data also mean that essentially half of hospitals and health systems are still operating at a financial loss, with many more just barely covering their costs," Mr. Krishnamurthy wrote. 


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