Hospital Outpatient Revenue Growth Contributes to Positive Margins

Hospital outpatient revenue is growing as patients seek healthcare services in less expensive settings, a performance trends report from Strata Decision Technology and Syntellis Performance Solutions found.

The report reflects data from more than 135,000 physicians across 10,000 practices and more than 500 departments at over 1,300 hospitals.

Based on August 2023 trends, hospital finances are stabilizing. Median operating margins increased from 1.1 percent in July to 1.4 percent in August, continuing the sixth consecutive month of positive margins.

Higher patient volumes and revenues contributed to positive margins. Adjusted discharges rose 9.3 percent month-over-month and 6.5 percent year-over-year. Adjusted patient days were up 5.6 percent from July, and operating room minutes increased by 13.7 percent month-over-month.

Gross operating revenue was up 8.7 percent from July and 7.8 percent from August 2022. These increases were fueled by outpatient revenue growth. Patients utilized outpatient care at higher rates, causing outpatient revenue to increase by 11.6 percent month-over-month and 10 percent year-over-year. Inpatient revenue saw a more modest growth of 3.9 percent month-over-month and 4.0 percent year-over-year.

Orthopedic care trends highlighted the demand for outpatient services. Outpatient volumes for orthopedic care were 33 times higher than inpatient volumes in May 2023. Outpatient volumes at the average health system grew by 29.9 percent, from 373,266 per month in January 2022 to 484,857 per month in May 2023.

Over the same period, inpatient orthopedic volumes rose by 30.6 percent, but the number of visits was significantly lower than outpatient visits at 14,304 per month in May 2023. Inpatient specialty care is hurting hospital finances, with the median hospital losing an average of $3,630 for each inpatient orthopedic visit in May 2023.

Although hospital revenues increased, expenses also grew in August. Total expenses rose by 4.2 percent from last year and 3.7 percent from July 2023. Non-labor expenses (6 percent), drug expenses (7.3 percent), and supply expenses (5.4 percent) were all up from August 2022.

Total labor expenses increased by 3.0 percent from August 2022 and 0.6 percent from July 2023. However, the share of hours worked by contract nurses—which previously contributed to high labor costs—declined from 13.4 percent in February to 9.2 percent in August.

Similarly, the median hourly rate hospitals pay agencies to hire contract registered nurses has declined from $110.25 per hour in September 2022 to $86.90 in August 2023. The August rates are still higher than pre-pandemic levels, though, and exceed the rates paid for employed registered nurses, the report noted.

Physician practices are requiring more financial support from hospitals, health systems, and larger physician groups as expenses grow. Physician expenses increased by 6.2 percent from 2022 to $927,203 annualized.

Meanwhile, the median investment per physician full-time equivalent (FTE) was $254,362 for August annualized, up 6.4 percent from 2022 and 12.1 percent from 2021. Investment growth was consistent across specialties, the report stated.

Physician productivity increased by 5.9 percent from August 2022, net revenue per physician FTE was up 10.1 percent from last year, and practice staffing levels were down by 1.8 percent.