Hospitals See Margins Above Pandemic Levels in October

Hospital financial performance improved in October, signaling continued stabilization in the wake of the COVID-19 pandemic, according to the latest “National Hospital Flash Report” from Kaufman Hall.

The latest financial performance data from more than 1,300 hospitals from Syntellis Performance Solutions shows a median calendar year-to-date operating margin index, as calculated by Kaufman Hall, of 1.2 percent in October. The metric has held steady at this percentage since August 2023.

The median calendar year-to-date operating margin index peaked in June at 1.5 percent, dipping to just 1.0 percent a month later in July. However, the recent stabilization in the metrics indicates hospital financial resilience. Hospital operating margins are also elevated over pandemic levels, the latest report states.

“Hospitals are continuing to experience financial stabilization and are increasingly adopting strategies to build resilience and minimize vulnerability,” Erik Swanson, senior vice president of Data and Analytics, Kaufman Hall, said in a statement. “Key strategies include investing in technology, strengthening relationships with post-acute providers, expanding outpatient footprints, and deploying workforce optimization techniques.”

Workforce challenges have plagued hospitals and health systems, as well as physician practices, since the height of the pandemic in 2020. Hospitals, in particular, continue to feel the pinch of higher labor expenses. Reliance on contract labor to fill workforce gaps has declined, recent quarterly earnings have suggested, but hospitals are still pulling themselves up from record costs from using travel nurses and other clinicians.

Labor expenses per adjusted discharge did not change compared to September, the national data reveals. However, the metric is down by 5 percent year-over-year and 6 percent year-to-date versus last year.

Meanwhile, non-labor expenses per adjusted discharge were up by 1 percent in October, with no change year-over-year and compared to 2020 levels. The metric decreased by 2 percent year-to-date versus year-to-date last year.

Volumes also held steady in October, the report shows. On a national level, hospitals saw little change in discharges per calendar day (0 percent), adjusted discharges per calendar day (0 percent), and average length of stay (1 percent) compared to September. Although discharges per calendar day were up by 5 percent year-over-year and by 3 percent year-to-date compared to 2020.

Hospitals also continued to see a shift to outpatient care as emergency department visits declined by 2 percent compared to the previous month. This has been a general trend since the pandemic and indicated a need to “build strong provider and outpatient networks,” the report states.

Additionally, there was a decrease in observation patient days in October, which the report attributes to a potential shift in patient type and an increased oversight of these patients through case management and observation unit utilization.

Action steps outlined in the report include incorporating patient-focused measures, such as cost of care to patients, to strengthen patient relationships. These measures can be used to improve patient satisfaction, boost access, and enhance marketing, the report says.

Hospitals should also track corresponding return on investment, the report suggests.

Overall, hospitals and health systems need to lean into the consumerization of healthcare to be more consumer-facing to improve their relationship with patients.