Hospital Finances Approach Pre-Pandemic Levels

Hospital financial performance is getting back on track after organizations faced the toughest year since the beginning of the COVID-19 pandemic, according to new data from Kaufman Hall and Syntellis Performance Solutions.

The latest “National Hospital Flash Report,” which draws on data from more than 1,300 hospitals, showed improvement in December 2023. Margins up by more than 15 percent compared to 2022, the worst year for hospital finances since 2020.

Hospitals started 2023 in the negative, with a median Kaufman Hall calendar year-to-date operating margin index of -0.5 percent in January and February. However, the median operating margin index hit its high for the year by December at 2.3 percent. Year-end accounting adjustments contributed to a small bump in performance, the report added.

The report also found that the average length of stay declined on a year-over-year basis, signaling hospital and health system efforts to establish clear pathways for patient discharge. Meanwhile, outpatient revenue increased significantly in December, rising by over 40 percent versus 2020.

General improvement across operational and financial measures means hospitals are approaching pre-pandemic levels after a long four years of tumult, Kaufman Hall stated.

“These improved margins indicate that hospitals and health systems are taking the necessary steps to adapt to this new environment,” Erik Swanson, senior vice president of Data and Analytics with Kaufman Hall, said in a statement. “While finances are approaching historic levels, today’s care and business models look very different. Organizations have had to adjust how and where they’re delivering services to better meet patient preferences.”

Meanwhile, the healthcare consulting firm said in its new “Physician Flash Report” that provider subsidies in 2023 are not sustainable.

Using data on over 200,000 providers, the report showed a median investment/subsidy per provider of $225,685 in the fourth quarter of 2023. That number is up by 7 percent since 2021, driven by an average increase in physician compensation of 9 percent during the period.

Additionally, the report found that labor expenses now account for approximately 84 percent of total expenses, representing a nearly 1 percent increase versus last year.

On the other hand, provider revenue is up compared to previous years as providers have increased productivity.

“All signs are pointing to the need for hospitals to reconsider whether subsidizing physicians is a sustainable financial future,” Matthew Bates, managing director and Physician Enterprise service line lead with Kaufman Hall, said in the statement. “Sticking to the status quo is not a feasible option for organizations that want to be successful in the long term—they need to examine and rethink how the physician employment model is linked to their overall financial strategy and goals.”

Expenses need to come down, according to Kaufman Hall. Hospitals may need to reconsider traditional physician employment models by adjusting compensation or adopting new models that reward efficiency or leverage advanced practice providers more.

Hospitals also need to identify where profitability has shifted within their own service lines, as well as examine their discharge processes, authors of both reports recommended. Establishing strategic partnerships with skilled nursing facilities could also improve quality and experience of patient care.