January Hospital Margins Dip, But Overall Finances Remain Stable

Hospital margins in January were down slightly from December 2023, but finances are more stable compared to previous years, according to a report from Kaufman Hall.

The latest edition of the National Hospital Flash Report reflects financial performance from January 2024 and is based on data from more than 1,300 hospitals.

The Kaufman Hall Monthly Operating Margin Index during January was 5.1 percent, compared to 5.5 percent in December 2023, signifying an 11 percent decrease. However, operating margins were higher in the first month of 2024 than in 2022 and 2021, and margins were up 25 percent year-over-year.

From December to January, net operating revenue per calendar day increased by 1 percent and was up 10 percent from January 2023. Gross operating revenue grew by 5 percent month-over-month and 10 percent year-over-year. This difference in growth between net and gross revenue may indicate that payers are negotiating more aggressively, and providers are shifting to value-based payment models, researchers said.

Inpatient revenue rose 8 percent and outpatient revenue increased by 4 percent from December to January. Discharges (1 percent), adjusted patient days (3 percent), and the average length of stay (3 percent) increased month-over-month. In contrast, emergency department visits fell by 4 percent.

Expenses also grew in January. Total expenses per calendar day were up by 3 percent month-over-month and 6 percent year-over-year. Similarly, labor expenses increased by 3 percent from December and 4 percent from January 2023.

From December to January, non-labor expenses rose by 2 percent, supply expenses increased by 4 percent, and drug expenses grew by 6 percent.

“While hospital financials continue to show stabilization across all volume-adjusted metrics, a deeper dive into the data shows that not all organizations are experiencing the same stabilization,” Erik Swanson, senior vice president of Data and Analytics at Kaufman Hall, said.

“High-performing hospitals are doing better and better while lower financial performers have stagnated or seen their margins worsen. One factor driving this divide is the adoption of a well-defined advanced analytics and artificial intelligence strategy to support business objectives.”

According to the report, hospitals should prioritize artificial intelligence and analytics strategies that advance workforce optimization, task routinization and automation, strategic planning, and predictive analytics.

Strategies should also engage appropriate stakeholders early in the process and include explainable and transparent artificial intelligence tools. Ensuring they have the proper infrastructure and policies in place to manage the necessary data and analytics is key for hospitals to successfully deploy artificial intelligence models.