Hospitals' widening financial gap

On average, hospitals with solid financial results improved their results throughout the pandemic, while hospitals with poor financial performances saw their results worsen, Kaufman Hall wrote in a recent analysis.

The dual realities of hospital finances are that too many hospitals are losing money while high-performing hospitals are doing better and better, according to the report.

Kaufman Hall's latest "National Hospital Flash Report," which is based on data from more than 1,300 hospitals, outlined three key areas that separate high-performing hospitals' and low-performing hospitals when it comes to their operating performances: 

  • Outpatient revenue. In general, hospitals with higher and accelerating outpatient revenue are more profitable.

  • Contract labor. Hospitals that quickly reduced their percentage of contract labor demonstrate improved operating profitability. In addition, hospitals that aggressively marched down contract labor costs were correlated to rising wage rates for full-time staff. Rising wage rates appeared to attract and retain full-time staff, which has allowed those hospitals to decrease contract labor more quickly, all of which has led to increased profitability, according to the report. 

  • Average length of stay. A lower average length of stay corresponded with improved profitability. Hospitals that hyper-focused on patient throughput — which has led to appropriate and prompt patient discharge — have also proven this to be a solid financial strategy, according to the report. 

Hospitals on the other end of the scale continue to struggle, with the poorest financially performing hospitals reporting negative margins from -4% to -19%, according to Kaufman Hall. Continuation of this level of performance is unsustainable and makes it impossible to reinvestment in community care.

An often quoted comparison is that there is a significant financial divide between urban and rural hospitals, but recent data does not support this common perception. 

"When you compare 'all rurals' to 'all urbans' on the basis of average operating margin, no statistically significant difference emerges," Kenneth Kaufman, managing director and chair, and Erik Swanson, senior vice president, wrote. "However, what does emerge — and is a very important statistical observation — is that the lowest performing 20% of rural hospitals are, in fact, generating much lower margins than their urban counterparts this year. It is at this lowest level of rural hospital performance where the real damage is being done."

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