In response to feedback from hospital leaders like you, we have recently added a new feature for our calendar year-to-date and monthly Operating Margin Indices.
Our new data point measures hospital margin performance with the inclusion of all allocations for the cost of shared services that they receive from their health system. We are continuing to publish our original operating margin data point, which measures performance for a single hospital entity irrespective of allocations.
Our update is intended to shed light on how health systems account for allocations for services that are shared by hospitals and other system entities. These shared services include, but are not limited to, salaries for hospital-based physicians and clinicians, as well as corporate departments like information technology, human resources, and administration.
Given the widespread variation in how hospitals that are part of health systems account for corporate allocations, this change is intended to help hospital leaders better compare themselves to peer organizations.
Importantly, none of the trends or conclusions that we’ve previously highlighted in the Flash Report change with the addition of this new data point.
Below is a case example illustrating how corporate allocations are accounted for at a sample hospital, and how the sample hospital performs using our existing and new margin indices.
In this example, the existing operating margin data point measures only hospital entity performance, and because this system does not allocate corporate office expenses, the operating margin for the hospital entity is 18.39%. The new data point, which reflects a margin of 3.96%, allocates $715,000 in corporate office expenses proportionately across the hospital, medical group, and retail/other operations, reflecting actual expenses that are borne by different system entities.
While the new adjusted metric is valuable, I also encourage readers to evaluate both data points relative to the change over time within the context of revenue and expense trends, which can be found in our National and Regional Data section.
Thank you for reading the National Hospital Flash Report, and I encourage you to reach out to me at eswanson@kaufmanhall.com with any comments or questions.
Sincerely,
Erik Swanson
Managing Director and Data and Analytics Group Leader
Author, National Hospital Flash Report
Kaufman Hall, a Vizient company
