Hospital financial performance off to a strong start

Hospital financial performance has stayed strong through the beginning of the year, according to the latest data from healthcare consulting firm Kaufman Hall.

The latest “National Hospital Flash Report” showed a median monthly operating index, as determined by Kaufman Hall, of 3.96% in February 2024. The index was slightly below January’s 4.7% and December’s 5.0% but remains in the black for hospitals, which have struggled since the COVID-19 pandemic four years ago to maintain positive margins.

Strong hospital financial performance stemmed from growth in both gross and net revenue, although gross revenue continues to rise at a faster rate than net revenue, the report revealed. The authors said this indicated changes in hospitals’ payer mix.

Medicaid disenrollment numbers are higher than expected, with new data showing more than 18 million people losing coverage during the process versus the projected 15 million. Furthermore, about 35 million beneficiaries’ eligibility redeterminations have either still not been completed or have not been reported.

Hospitals have also seen an increase in bad debt and charity care over the last few years, Kaufman Hall reported based on the latest data.

Still, outpatient care continues to drive revenue growth for hospitals as inpatient revenue falls, the report stated.

The shift to outpatient care has been a long time coming as more inpatient procedures can be safely and effectively performed in outpatient services. However, outpatient centers were also the first service lines to shut down during the COVID-19 pandemic out of an abundance of caution. The shift has boosted outpatient revenue; however, many speculate that the shift has also prompted greater market consolidation and lower inpatient days, which have historically been key to hospital revenue.

Hospitals will need to stay on top of financial performance over the next couple of months. The Kaufman Hall report did not take into account the Change Healthcare cybersecurity incident on Feb. 22nd. The incident impacted Change’s payment processing services, leading to a massive outage for weeks.

“Robust hospital margins in February demonstrate continued recovery from the pandemic years, but challenges are on the horizon,” Erik Swanson, senior vice president of data analytics at Kaufman Hall, said in a statement emailed to RevCycleIntelligence. “The aftermath of the Change Healthcare cyberattack and continued competition from industry disrupters may test financial performance in coming months, as disrupters capture more profitable, lower-acuity, and lower-capital-intense services from hospitals.”

Swanson and co-author of the report Lisa Goldstein, managing director of treasury and capital markets, recommended that hospitals prioritize steps to preserve liquidity, such as extending accounts payable and slowing capital spending.

They also advised hospitals to keep a close eye on denial rates as claim processing backlogs clear. Cybersecurity and clearinghouse diversification should also be top of mind, they said.