For-Profit Health System Operating Margins Exceed Pre-Pandemic Figures

Even as most hospitals are facing financial instability in 2022, operating margins for the country’s three largest for-profit health systems have met or exceeded pre-pandemic levels, according to an issue brief from the Kaiser Family Foundation (KFF).

Industry experts have labeled 2022 as one of the worst financial years for hospitals, with many predicting that facilities will end the year with negative margins. However, for-profit health systems are experiencing a different reality.

KFF researchers evaluated the financial performance of the three largest for-profit health systems in the US: HCA Healthcare (HCA), Tenet Healthcare Corporation (Tenet), and Community Health Systems (CHS). These health systems accounted for around 8 percent of community hospital beds in 2020.

The brief included operating margins from the first quarter of 2019 to the third quarter of 2022. Operating margins reflect the profit margins earned on patient care and other operations and government COVID-19 relief funds.

Since 2020, operating margins for all three health systems have been positive and were generally higher than the operating margins before the COVID-19 pandemic.

HCA had operating margins of at least 10 percent during most of the pandemic quarters, meaning that the health system’s revenue from patient care and other operations exceeded operating expenses by at least 10 percent.

During the first two quarters of the pandemic (Q1 2020 and Q2 2020), HCA’s operating margins fell below their 2019 margins to 8.5 percent and 6.9 percent. From then, margins rose and stayed above 10 percent. HCA’s most recently reported operating margin in Q3 2022 was 11.4 percent.

Similarly, Tenet’s operating margins dropped below 2019 margins in Q1 2020 (3.1 percent) and Q3 2020 (1.6 percent) but were at least 5 percent during the rest of the pandemic. Tenet’s operating margin as of the third quarter of 2022 was 8.4 percent.

Unlike HCA and Tenet, CHS’s average operating margin in 2019 was negative. The health system’s operating margin was negative twice during the pandemic, dropping to -3.2 percent in Q1 2020 and -3.3 percent in Q2 2022.

Operating margins were positive during the other nine quarters but were still lower than HCA and Tenet’s margins during the pandemic. CHS’s operating margin in Q3 2022 was 1.2 percent.

Stock prices for the for-profit health systems also fluctuated during the pandemic. Stock prices typically reflect investors’ evaluation of a company’s future earnings potential. HCA and Tenet stock prices have increased since January 2020, while CHS stock prices have decreased.

At their heights, HCA stock prices rose 87.9 percent, Tenet stock prices grew 153.8 percent, and CHS stock prices increased by 383.1 percent from January 2020.

As of November 8, 2022, HCA stock prices have increased by 44.6 percent, and Tenet stock prices increased by 12.6 percent relative to January 2020. Meanwhile, CHS stock prices have decreased by 11.5 percent from January 2020, but the health system’s financial challenges notably predated the pandemic.

“While some hospitals are struggling in the current environment—with high inflation and the ongoing burdens posed by COVID-19, flu, and respiratory syncytial virus (RSV)—our results indicate that the largest for-profit systems have had operating margins that exceed pre-pandemic levels,” the brief concluded.