The dual realities of hospital finances

Two things seem to be true at once when it comes to hospital finances: Too many hospitals are losing money and high-performing hospitals doing better and better, "effectively pulling away from the pack," according to an analysis from Kaufman Hall

Kaufman Hall is the group behind monthly "National Hospital Flash Report," which pins down hospitals' median operating margins by month along with other operational benchmarks based on data from more than 1,300 hospitals. 

In a Feb. 21 analysis, Kenneth Kaufman, managing director and chair of the firm, and Erik Swanson, senior vice president, broadened their retrospective view from a month to the past 25 months, from November 2021 through December 2023, to identify trends. 

Median operating margins throughout this timeframe saw big swings, going from 4.3% in December 2021 before taking a deep dive, plateauing at to 0.1% in December 2022 and ending at 2.3% in December 2023. (A bar graph showing month by  month fluctuations can be found here.) 

Here are five takeaways from Mr. Kaufman and Mr. Swanson's analysis of the numbers: 

1. Although the median operating margin ended 2023 at 2.3%, the Kaufman Hall analysts say it is a tenuous advantage. "Too many hospitals are still losing money," they note, pointing to the 40% of U.S. hospitals that continue to lose money from operations into 2024. The poorest financially performing hospitals currently show negative operating margins ranging from -4% to -19%.

2. At the same time, there is a group of hospitals that have "substantially recovered financially," Mr. Kaufman and Mr. Swanson note. "Interestingly, the data shows over time that the high-performing hospitals in the country are doing better and better. They are effectively pulling away from the pack." 

3. They point to several distinct factors contributing to the high-performers' prosperity, including higher outpatient revenue, swift reductions to contract labor, and lower average length of stay. 

4. Becker's ranked health systems through 2023 by their operating margins to help illustrate the range of profitability organizations recorded throughout the year — the high performance and struggle that Mr. Kaufman and Mr. Swanson discuss. 

5. Specifically, Mr. Kaufman and Mr. Swanson said their analysis also confirmed obstetrics and delivery services are one of the leading money losers of all hospital services. "And the data further confirms that rural hospitals are closing obstetric departments with more frequency in order to protect the financial viability of the overall rural hospital enterprise," they note. "This is a health policy issue of major and growing consequence."

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