Hospital margins decline in July but stay positive

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Operating margins at U.S. hospitals contracted for the first time since March, but still held positive during the month of July. According to a new Syntellis report, this drop was the first since margins rose into the black in March following more than a year of negative results.

Expenses continued to rise in July, contributing to the decrease in margins. The median, actual year-to-date (YTD) operating margin dropped to 1.1% for the month after climbing to a 2023 high of 2% in June.

Month-over-month, the median change in hospital operating margin was down 4.7%, but was still 2.6% higher than in July 2022.

WHAT'S THE IMPACT?

Nonlabor expenses remained on the rise as inflation continued to drive notable increases in hospitals' supply, drug and purchased services expenses compared to last year. Total nonlabor expense had the biggest increase from July 2022 at 5.5%, with supply expense up 5.3%, drug expense up 5% and purchased services expense up 5.9%.

Patient volumes held more or less steady; changes in inpatient days, emergency and surgery volumes were nearly flat compared to 2022. Adjusted patient days were down 0.6%, emergency department visits were down 0.4%, and operating room minutes were up just 0.8% versus July 2022.

Hospital revenues rose year-over-year in July, but decreased across most metrics month-over-month. Gross operating revenue rose 7.5%, and inpatient revenue increased 4.7% versus the same month last year. Outpatient revenue jumped 9.1% YOY as patients increasingly opted for more convenient outpatient services, the report found.

Investments needed to support physician practices continued to rise as practices felt the effects of ongoing expense increases across the industry. Median investment per physician full-time equivalent was $274,407 for July annualized, up 3.7% from 2022 and 8.7% from 2021. July annualized total direct expense per physician FTE was $973,218, representing a 5.9% increase from 2022 and an 11.4% jump from 2021.

THE LARGER TREND

Last year was the worst financial year for hospitals and health systems since the start of the COVID-19 pandemic, with operating margins taking a particular hit, Kaufman Hall data showed earlier this year.

Hospitals faced prolonged increases in labor expenses last year. The increases were driven in part by a competitive labor market, as well as hospitals needing to rely on more expensive contract labor to meet staffing demands. Increased lengths of stay due to a decline in discharges also negatively affected hospital margins.

Outpatient settings saw increased volume; the front door of the hospital continues to shift away from the emergency department, said Kaufman Hall. Hospitals experienced increased outpatient volumes, including in surgical settings.
 

Twitter: @JELagasse
Email the writer: Jeff.Lagasse@himssmedia.com