Kaufman Hall: Hospitals’ Margins Continuing to Improve

Feb. 28, 2024
Hospital-based organizations’ operating margins are improving, though unevenly across the industry, Kaufman Hall’s latest report finds

Hospital-based organizations are gradually coming back from the depths of their fragility during the worst of the COVID-19 pandemic that devastated them financially during most of 2020 and 2021, though their recovery continues to be slow and partial. That’s what leaders at the Chicago-based Kaufman Hall consulting and advisory firm have found, in their “National Hospital Flash Report: February 2024,” which they released on Feb. 28.

As they noted on Wednesday on the firm’s website, “Hospitals’ financial performance in January improved relative to previous years, according to the latest National Hospital Flash Report from Kaufman Hall. While margins declined slightly from December, they were higher in January relative to the same periods in 2022 and 2021.” In fact, average operating margins went from 1.9 percent in December to 5.1 percent in January, a meaningful increase. But there is complexity underneath that marquee statistic.

 “While hospital financials continue to show stabilization across all volume-adjusted metrics, a deeper dive into the data shows that not all organizations are experiencing the same stabilization,” said Erik Swanson, senior vice president of data and analytics. “High-performing hospitals are doing better and better while lower financial performers have stagnated or seen their margins worsen. One factor driving this divide is the adoption of a well-defined advanced analytics and artificial intelligence strategy to support business objectives.”

Key takeaways, according to the report:

1. Margins improved in January relative to previous years. While margins declined slightly from December, they were higher in January relative to the same periods in 2022 and 2021.

2. Net revenue has not risen as fast as gross revenue. This might reflect payers negotiating more aggressively and a shift to value-based payment models.

3. Total expenses on a volume-adjusted basis have improved. Though there’s been continued growth in drugs and supply expenses, labor expenses have improved.

The full report can be found here.

 

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