Hospital Finances Look Stable on Surface, But Performance is Uneven
Rising labor costs and shrinking revenue part of the “new normal” for health systems
CHICAGO - August 5th, 2024 - Hospital financial performance continues to show signs of stabilization, according to Kaufman Hall’s latest National Hospital Flash Report. Kaufman Hall’s Calendar Year to Date Operating Margin Index for hospitals was 4.1% in June.
Increased divide between higher performing and lower performing hospitals
However, the latest report also finds that growth is uneven. Regional data show that all regions, except for the Great Plains, demonstrated improvement compared to last year.
“There is a growing divide between higher and lower performing hospitals, even as overall market conditions continue to stabilize,” said Erik Swanson, senior vice president and Data and Analytics group leader with Kaufman Hall. “Smaller hospitals continue to face challenges related to size and access to capital.”
Rising labor costs are here to stay
The latest Physician Flash Report finds health systems are confronting a new normal of shrinking revenue and rising labor costs. In the second quarter of 2024, labor expenses accounted for 83.9% of total expenses. Additionally, the median investment/subsidy per provider rose 3% since Q2 2023.
“Higher-performing health systems are reviewing their employed physician portfolios and targeting profitable service lines,” says Matthew Bates, managing director and Physician Enterprise service line leader with Kaufman Hall. “We are also observing that leading organizations are more effectively deploying advanced practice providers.”
The National Hospital Flash Report draws on data from more than 1,300 hospitals from Syntellis Performance Solutions, now part of Strata. The Physician Flash Report draws on data based on more than 200,000 providers, also from Strata.
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.