Rising volumes aren't resulting in stronger margins as many organizations are finding little to no relief, Kaufman Hall's latest report shows.
Hospitals are seeing higher patient volumes but little margin improvement, and the divide between the strongest and weakest performers continues to grow, according to Kaufman Hall’s latest National Hospital Flash Report.
The analysis, compiled from data on 1,300 hospitals nationwide, shows that patient volumes increased across emergency departments and inpatient care in September. However, despite volume trending positively, median operating margins remained essentially unchanged as hospitals continued to face elevated costs for labor, drugs, supplies, and purchased services.
The median hospital operating margin for the month including all allocations for the cost of shared services that they receive from their health system, was 2.3% in September. That figure was closer to the level of previous months after August’s drop-off.
For the first nine months of the year, the median calendar year-to-date operating margin, including allocations, ticked up to 2.9%, compared to 2.5% in August.
Still, Kaufman Hall found that the average margins for hospitals in the 75th percentile and those in the 25th percentile ranged from 14.7% to -1.8%, respectively.
“The gap between strong performers versus struggling hospitals continues to widen,” Erik Swanson, managing director and data and analytics group leader with Kaufman Hall, said in a statement.
In terms of volume, discharges per calendar day were up 1% month-over-month and 4% year-over-year, while emergency department visits per calendar increased 3% month-over-month and 2% year-over-year.
Improved volumes led to a 4% jump month-over-month in net operating revenue per calendar day and an 8% rise year-over-year.
Kaufman Hall indicated that the ability to manage patient flow, especially as emergency and inpatient demand grows, is playing an increasingly important role in determining performance.
“Hospitals need to think about how to manage increased volumes despite flat margins,” Swanson said. “There will be more demand for emergency departments and inpatient care, and the ability of hospitals to manage patient throughput will be increasingly important.”
Even with revenue growth from increased volumes, swelling drug and supply costs kept margins from improving meaningfully in September.
Total expense per calendar day was up 3% month-over-month and 8% year-over-year, with supply expense per adjusted discharge surging 5% and 7%, respectively, and drugs expense per adjusted discharge climbing 2% and 6%, respectively. Increases in pricing and expanded use of more advanced pharmaceuticals are contributing to ballooning drug costs, the report highlighted.
The performance gap between higher- and lower-performing hospitals is expected to remain through the remainder of the year, testing the resiliency of organizations and their cost structures.
Jay Asser is the CEO editor for HealthLeaders.
KEY TAKEAWAYS
Patient volumes increased across emergency and inpatient settings in September, but median margins held flat due to inflating expenses.
The spread between top- and bottom-performing hospitals grew, with margins ranging from 14.7% to -1.8%.
Throughput and flow management are becoming critical differentiators as hospitals face higher demand but limited financial flexibility.