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Operating Margins Improve, Gap Between Performing and Struggling Hospitals Widens

Analysis  |  By Jay Asser  
   August 03, 2023

The latest Kaufman Hall report highlights that most hospitals continue to struggle despite overall stabilization.

Hospital margins for the year rose in June, but the divide between the haves and have-nots widened as expenses and economic pressures remained high, according to new Kaufman Hall analysis.

The consulting firm's National Hospital Flash Report revealed that most hospitals underperformed in June, even as the median year-to-date operating margin index increased to 1.4%, compared to 0.7% in May. Kaufman Hall noted that the bump was helped by fiscal year-end accounting adjustments.

"As margins continue to stabilize on the surface, the gap between high-performing hospitals and those struggling in this new financial environment is widening," Kaufman Hall said in the press release.

The report uses actual and budget data over the past three years, sampled from more than 1,300 hospitals from Syntellis Performance Solutions.

Other takeaways from the analysis include average length of stay remain on the decline, dropping 2% from May, while emergency department visits are down 1%. Operation revenue climbed by 2%, indicating "people are continuing to shift away from inpatient settings," the report stated.

The proportion of full-time equivalents per adjusted occupied beds fell 8% from May, which analysts said may illustrate workforce reductions and staff turnover.

Lowering labor expenses helped HCA Healthcare experience higher profits as the health system reported net income of $1.193 billion for the second quarter.

Kaufman Hall's report also showed that bad debt and charity per calendar day was up 3% from May, with hospitals affected by states increasing efforts to redetermine Medicaid eligibility, leading to more disenrollments.

"This 'new normal' is an incredibly challenging environment for hospitals," Erik Swanson, senior vice president of Data and Analytics with Kaufman Hall, said in the press release. "It's time for hospital and health system leaders to begin developing and implementing a strategy for long-term sustainability, including expanding their outpatient footprint and re-evaluating where finite resources are being utilized."

Cost reduction is the focal point of CEOs, according to a new report from Deloitte. More than half (54%) of CFOs indicated that their CEOs are asking them to focus on cost reduction, while 40% said their CEOs want them focused on strategy/transformation.

Jay Asser is the contributing editor for strategy at HealthLeaders. 


Kaufman Hall's National Hospital Flash Report for June found that the median year-to-date operating margin index increased to 1.4%, though most hospitals underperformed for the month.

The proportion of full-time equivalents per adjusted occupied beds declined 8% as hospitals target workforce reductions and labor expenses.

Hospitals should also develop care strategies to account for an increasing shift from inpatient to outpatient services.

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