Hospital margins dip as long-term capital spending increases

Hospitals continue to see high labor and supply expenses, and margins are dipping as they embark on new capital projects, according to Kaufman Hall's National Hospital Flash Report, released Nov. 12.

The report is based on data from 1,300 hospitals reported monthly. Here are eight findings.

1. Average year to date hospital margin hovered around 4.7% from May to August, but dropped to 4.3% in September. Month over month, average hospital margins dropped from 4.0% in August to 3.5% in September.

2. Average operating margins increased 16% year over year in September, but are down 13% year to date compared to 2021, showing how slowly hospital margins are recovering.

3. Net operating revenue per calendar day grew 8% year over year while overall expenses climbed 6%, driven by supply expenses and purchased service growth, according to the report.

4. Capital spending has increased in 2024, and is more focused on long-term strategies than during the pandemic. Health systems are now investing more in IT, digital and AI capabilities in addition to the traditional brick-and-mortar buildings to expand capacity.

5. Kaufman Hall recommended diversifying revenue streams, including investment in ASCs and specialty pharmacies as the healthcare environment changes.

6. Inpatient revenue per calendar day was up 6% year over year while outpatient revenue grew 9% in September. Over the last three years, outpatient revenue rocketed 31% while inpatient revenue increased just 13%.

7. Average length of stay increased 1% year over year in September, and is down 4% year to date compared with 2023. Data shows hospitals are treating more high-acuity patients, "which results in a decline in volume and increase in expenses," according to the report.

8. While contract labor rates are dropping, the overall labor market is tight, according to the report.

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