Hospital and Health System Finances Saw Promise in 2023
CHICAGO – January 30TH, 2024 – Following the worst year since the beginning of the COVID-19 pandemic, 2023 presented a more promising trend for hospitals and health systems with general improvement across operational and financial measures, according to the latest data from Kaufman Hall.
The median calendar year-to-date operating margin index for hospitals was 2.3% in December, with year-end accounting adjustments contributing to a slight bump in performance, according to findings in the latest National Hospital Flash Report. The latest Physician Flash Report found that provider productivity has increased, but expenses continue to outpace revenue growth.
Hospital Finances Approach Pre-Pandemic Levels
Hospitals and health systems saw significant financial improvement in 2023, but whether this will hold moving forward remains to be seen. The average length of stay has declined on a year-over-year basis as hospitals have worked to establish and maintain clear pathways for patient discharge. However, average length of stay may ultimately rise as lower-acuity patients are increasingly treated outside of the hospital setting. Outpatient revenue has grown significantly—increasing by more than 40% compared to 2020.
“These improved margins indicate that hospitals and health systems are taking the necessary steps to adapt to this new environment,” said Erik Swanson, senior vice president of Data and Analytics with Kaufman Hall. “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.”
Provider Subsidies Not Sustainable
Revenue is up, reflecting increased productivity by providers, but expenses are increasing at a faster rate. The median investment/subsidy per provider rose to $225,685—an increase of 7% since 2021. This is due in part to provider compensation, which has risen 9% compared to 2021. Meanwhile, advanced practice providers (APPs) now make up 38.1% of the total provider workforce, as data show that hospitals and health systems that effectively recruit and deploy APPs continue to outperform those that do not.
“All signs are pointing to the need for hospitals to reconsider whether subsidizing physicians is a sustainable financial future,” said Matthew Bates, managing director and Physician Enterprise service line lead with Kaufman Hall. “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.”
The National Hospital Flash Report draws on data from more than 1,300 hospitals from Syntellis Performance Solutions. The Physician Flash Report draws on data based on more than 200,000 providers, also from Syntellis.
About Kaufman Hall
Kaufman Hall provides management consulting solutions to help society’s foundational institutions realize sustained success amid changing market conditions. Since 1985, Kaufman Hall has been a trusted advisor to boards and executive management teams, helping them incorporate proven methods, rigorous analytics, and industry-leading solutions into their strategic planning and financial management processes, with a focus on achieving their most challenging goals.
Kaufman Hall services use a rigorous, disciplined, and structured approach that is based on the principles of corporate finance. The breadth and integration of Kaufman Hall advisory services are unparalleled, encompassing strategy; financial and capital planning; performance improvement; treasury and capital markets management; mergers, acquisitions, partnerships, and joint ventures; and real estate.
Kaufman Hall companies include Claro Healthcare and Gist Healthcare.
CONTACT: Jennifer Chu, JChu@MessagePartnersPR.com, 703-300-1831