Hospital operating margins dip again after months of growth

After four months of steady growth, hospitals' median year-to-date (YTD) operating margin index declined slightly to 1.3% in July compared to 1.4% in June. 

According to Kaufman Hall, this slight decline in margins may be partly due to decreased patient volumes. Nationwide, discharges per day dropped by 4% in July compared to June, and operating room minutes per day dropped by 13%.

Outpatient volumes also decreased slightly more than inpatient volumes, which could be due to fewer patients getting elective procedures during the summer.

However, even with this small decline, hospital margins are still higher than they were at the same time last year. In July 2022, hospitals had a 2.6-percentage-point lower margin. In addition, hospitals' expenses decreased by 3% in July, including labor expenses. Labor costs are now at the same level as they were in July 2022, but are still 26% higher than where they were in July 2020.

Meanwhile, bad debt and charity care as a percentage of hospitals' gross operating revenue increased by 7% between June and July. This increase may partly be due to Medicaid eligibility redetermination efforts. So far, over 30 states have begun disenrolling individuals who are no longer eligible.

Commentary

According to Kaufman Hall, many hospitals have had to prioritize care transition to stay profitable amid ongoing financial difficulties.

To ease care transitions, Kaufman Hall recommends:

• Obtaining any necessary pre-certifications and payer authorizations before a patient arrives and creating a provisional discharge plan as soon as they're admitted
• Forming relationships with post-acute care settings so patients will be able to transition to care after their discharge more easily
• Collecting data, such as patients' length of stay, to inform process improvements

"It's clear that today's challenging financial environment is here to stay, and hospital leaders must be proactive in seeking out opportunities to refine their operations and remain competitive," said Erik Swanson, Kaufman Hall's SVP of data and analytics. "Collecting good data and feedback is essential for making timely, evidence-based process improvements." (Adams, MedCity News, 8/29; Thomas, Becker's Hospital CFO Report, 8/28; Kaufman Hall National Hospital Flash Report, 8/28)

Health systems are under increasing pressure to reduce costs. Over years of studying cost-controlling best practices, Advisory Board has identified 20 essential tactics that can help you create near-term savings and set the stage for long-term cost discipline.