Hospital Margins Up, For Some

The gap between highest and lowest performing hospitals shrank this year.

Nonprofit hospital margins jumped to 4.3%, up 33% year over year, according to findings from a KaufmanHall report released.

In addition to the improved margins for the 1,300 hospitals analyzed in the report, the gap between the lowest and highest performing hospitals has narrowed. Those that performed the best saw a margin of 28.9%, while the worst performing hospitals came in at -16.1%.

“While hospital margins have demonstrated improvement over the last several years, growth has slowed in the last few months and may be settling on a new normal. A closer look at hospital performance at the individual level shows an increased divide between higher performing and lower-performing hospitals,” said report author and senior vice president of data and analytics Erik Swanson in the report.

Month over month operating margins were up 7%, and year to date they soared to 21% higher than in 2023. The operational cash profit margin year to date was also up 14% compared to the same period last year.

In April, net operating revenue per calendar day increased to 9% year to date, 5% year to date in March. Year over year in April inpatient revenue jumped to 12%. 

Data from the KaufmanHall report showed three notable items:

In April outpatient revenue increased 10% year over year and average length of stay decreased 4%. Emergency department visits also increased up to pre-pandemic levels.

The Big Picture

Last year labor costs and inflation brought major cash shortages to many hospitals. Margins from 2020 indicate that federal support was vital throughout the pandemic in order for hospitals to remain financially viable.

In search of cost savings, many hospitals turned to supply chain optimization and the delay of new tech implementations. From one study, many hospitals and health systems cited low payer reimbursement as the top cause for low operating margins.

“Recovering from the pandemic, we have seen a slight overall improvement in average operating margins over the past three years,” said HFMA Chief Partnership Executive Todd Nelson in a press release.

Bouncing Back From 2023

A previous study by Deloitte found that operating margins reached an eight year low of -0.8% in 2023.

Health systems are the “lifeblood” of an innovative health system, the report concludes. Profits are important to fund the mission of a health system and enable it to better serve the community. Leaders should focus on their fiduciary responsibility to support health systems long term.