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Latest Kaufman Hall Numbers Show Hospital Margins Continue to Stabilize

Analysis  |  By Amanda Schiavo  
   May 10, 2023

Hospital expenses for the month of March outpaced revenue growth.

Hospital financials are making a slow crawl toward stability, but organizations are still facing high expenses and economic pressures, according to the latest Kaufman Hall data.

The median year-to-date operating margin index for hospitals was flat in March but did show a small improvement from February, according to the data. Margins are continuing to stabilize; however, they are still below pre-pandemic levels. Kaufman Hall says this leaves hospitals in a "vulnerable position" in the event of a recession or another public health crisis.

"While it appears that hospital finances are stabilizing, that doesn’t mean that all is well," Erik Swanson, senior vice president of data and analytics with Kaufman Hall, said in the report. "Under the seemingly calm surface, there are significant challenges—especially labor shortages and diminished margins—that could quickly reach the surface should another crisis arise."

Expenses for the month of March outpaced revenue growth, according to the Kaufman Hall data. Inflation has been a heavy stone around the neck of hospitals. Non-labor expenses including drug and supply costs rose by 6% from February. As productivity rises, so does the total direct expense per provider full-time equivalent. FTE saw a 17% rise in the first quarter of 2023.

Although there was an increase in productivity and revenues for the first quarter of 2023, there was a 12% year-over-year increase in median investment/subsidy per provider FTE to $236,842. This represents an increase twice the rate of inflation. This is due to the increased costs of materials and labor, according to Kaufman Hall experts.

"As labor pressures continue, we’re seeing more and more reliance on advanced practice providers—including nurse practitioners and physician associates, Matthew Bates, managing director and physician enterprise service line lead with Kaufman Hall, said in the report. "Two of every three providers that will enter the workforce this year will be an advanced practice provider. Provider groups that hire, retain, and deploy this corner of the workforce most effectively will see the most success in the long-term."


Amanda Schiavo is the Finance Editor for HealthLeaders.

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