Health systems see margin gains, though expenses still high
The biggest expense increases were on the nonlabor side, particularly in drug costs, data shows.
Photo: katleho Seisa/Getty Images
Health systems in the U.S. saw slight margin gains in October following three months of declines, while operating margins for individual hospitals narrowed and expenses remained high, according to new data published by Strata Decision Technology.
Significant increases in drug costs contributed to higher nonlabor expenses, as drug expenses rose 15.2% and total nonlabor expenses increased 10% from October 2023 to October 2024.
Per-physician expenses remained elevated at $1.1 million for October annualized, up 9.8% versus 2023 and 17.8% compared to 2022.
At the same time, the demand for outpatient services continued to climb, with growth in outpatient visits up 8.6% year-over-year, outpacing inpatient volume growth for the month.
WHAT'S THE IMPACT?
The median year-to-date (YTD) health system operating margin shifted up from 1.6% in September to 1.8% in October, while the median YTD hospital operating margin dropped from 5.1% to 4.9% over the same period.
By size, larger hospitals with 300 to 499 beds had the biggest increase of 2.9 percentage points year-over-year (YOY), while mid-sized hospitals with 200-299 beds had the least increase of just 0.9 percentage point.
The biggest increases in expenses were on the nonlabor side. Total nonlabor expenses jumped 10% from October 2023 to October 2024 as drug expense rose 15.2%, supply expense increased 13.2% and purchased service expense rose 11.6%. Total labor expense was up 6.5%, and total expense increased 8.5% YOY, data showed.
Hospitals saw some relief after adjusting for patient volumes, with total expense per adjusted discharge down 1% and labor expense per adjusted discharge down 2.7% YOY. Nonlabor expense per adjusted discharge, however, increased 1.2% over the same period.
Gross hospital revenues remained on the rise, with an 18th consecutive month of YOY increases for inpatient, outpatient and overall gross operating revenues. Outpatient revenue was up 12.7% YOY in October, inpatient revenue increased 5.9%, and gross operating revenue rose 11.2% over that time.
THE LARGER TREND
When it came to patient demand, hospitals saw mixed results, according to Strata, a company that develops cloud-based solutions for financial planning, performance analytics and decision support. Outpatient volumes had the biggest increases as demand for such services grew, with outpatient visits jumping 8.6% YOY and 12.8% month-over-month. Inpatient admissions also increased, rising 4.7% YOY and 3.7% from September to October 2024.
Compared to two years ago, in October 2022, inpatient admissions were up 8.7% and outpatient visits jumped 16.2%.
An Impact of Change analysis from Sg2, a Vizient company, released in June, predicted that both inpatient and outpatient volumes will continue to increase over the next decade, impacting how and where organizations deliver care.
The analysis anticipates inpatient utilization will rise 3% to 31 million annual discharges, while inpatient days will increase 9% to 170 million over the next decade, impacting healthcare organizations' ability to manage the flow of patients.
Jeff Lagasse is editor of Healthcare Finance News.
Email: jlagasse@himss.org
Healthcare Finance News is a HIMSS Media publication.
