The margin paradox: Rising volumes, shrinking margins

Currently, elective procedure volumes are rebounding post-pandemic, but financial margins aren't keeping pace.

Despite projected volume growth of 3% to 5% annually, operating margins remain under pressure. In 2024, the national average operating margin was -4%, and 44% of strategic planners reported expecting both volume increases and declining margins as a result of escalating costs in labor, drugs, supplies, energy, cybersecurity, and construction.

The disparity is especially stark in rural areas. "Thirty-seven percent of hospitals are operating in the red and thirty-four percent of rural hospitals were at risk of closing back in March," Herrington said. "For every hospital that received an upgrade in its S&P rating, 4.5 hospitals received a downgrade."

6 strategies for margin improvement

Herrington, Haines, and Wyld outlined six strategies healthcare provider organizations can enact to improve financial performance.

Practically, this involves transforming operations to reduce overinvestment, expand patient volume, and promote collaboration across departments. Specific tactics include improving documentation and coding accuracy, expanding self-service capabilities, optimizing vendor relationships, and aligning investments with outcomes to ensure scalable operations.

Ultimately, the goal is to shift from legacy metrics like Accounts Receivable (AR) days to more meaningful indicators like yield, which measures how much of the expected reimbursement is actually collected, adjusted for cost.

"Patients want to be able to take care of their out-of-pocket obligation online or through their phone or an app — or even better, a text message," Wyld said.

"Optimizing the financial experience improves the overall patient experience," Wyld said, noting that 69% of Americans would switch providers for a better experience.

These technologies can help organizations improve revenue collection, reduce reliance on manual labor, and enhance analytics and workflow efficiency.

Examples include:

• Autonomous coding and ambient AI scribing
• Automated prior authorization and claim status checks
• Digital scheduling and registration

AI tools enable a touchless revenue cycle that allows staff to focus on exceptions and complex cases. Cultural adoption of these new tools is critical; automation should be viewed as a member of your revenue cycle team.

Some potential strategies include creating value analysis committees to engage clinicians in product decisions, using data analytics to benchmark spend and predict disruptions, and consolidating vendor contracts to eliminate redundancies.

Some potential solutions health systems can utilize include implementing dynamic staffing workflows, using predictive analytics for real-time adjustments, and tailoring strategies to multi-generational teams.

Respecting and engaging staff is critical as well. "It's a large cost, but you need these individuals to work hard for you. And so how do you maintain … that culture and be transparent throughout any of these initiatives … [and] make sure they understand the why behind it?" Haines said.

Key components include standardizing care delivery, embedding clinical optimization cycles, and aligning incentives and governance structures.

This strategy supports both quality improvement and cost reduction. "It's not just about collecting money … it's really about helping organizations reinvest in providing care for more patients," Haines said.

Conclusion

As health systems brace for continued financial pressure, Wyld emphasized that "inaction is no longer a financially viable option."

"Start now. Start making these small incremental improvements," Haines said. "You're then driving the ship versus somebody else doing it and forcing it on you."

Whether through automation, patient engagement, or supply chain optimization, the message is clear: sustainable margin improvement is possible — but only with deliberate, data-driven action.