Solid operating margins have hospitals looking to strategic growth, says Kaufman Hall

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Hospitals in the U.S. can begin to transition from financial stability to strategic growth after a month in which operating margins and other performance metrics improved, according to the newly released Flash Report from Kaufman Hall.

Revenue per adjusted discharge increased in November 2023, while total expense per adjusted discharge decreased month-over-month and year-over-year, the firm said in its January report. That, according to Kaufman Hall, is a sign of recovery, reflecting efforts organizations have taken to deliver care in the most effective settings, and reduce reliance on contract labor where possible.

Average length of stay declined, indicating a shift towards more normal patient acuity, authors said. Organizations that have adopted value-based and bundled payment models will benefit further as they transition and provide care at the appropriate clinical setting, according to the report.

WHAT'S THE IMPACT?

The median calendar year-to-date operating margin index for hospitals was 2.0% in November 2023, as margins continue to trend positive.

Inpatient and outpatient revenue increased year-over-year by 5% and 9%, respectively. Total expense per adjusted discharge declined, while revenue per adjusted discharge increased – another indicator of financial recovery for hospitals, Kaufman Hall said.

With performance indicators stabilizing,  Erik Swanson, senior vice president of data and analytics with Kaufman Hall, said hospitals should take advantage of the relative stability and re-embrace strategic growth if they want to succeed in 2024.

"Growth strategies may vary from hospital to hospital, but all leaders should ensure that they are supporting goals beyond just profitability and scale, including business model transformation and diversification," he said.

The firm suggested that healthcare organizations can't cut their way to financial viability, and instead must reinvest in strategic growth to stay on track. It advised hard work, discipline, persistence and flexibility. 

THE LARGER TREND

Research from the Urban Institute released in 2023 examined the financial vulnerability of hospitals and health systems throughout the pandemic. The study found that operating margins plummeted to negative 40% in April of 2020, underscoring how important federal support was for hospitals to remain financially viable during the pandemic.

Last year many hospitals faced cash shortages brought on in part by labor costs and inflation, according to Plante Moran's Duane Fitch. Plante Moran works with hospitals on creating Centers of Excellence in one or two service lines and making sure they are optimizing performance in those lines.
 

Jeff Lagasse is editor of Healthcare Finance News.
Email: jlagasse@himss.org
Healthcare Finance News is a HIMSS Media publication.