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Providers Indicate Improved Outlook for Cost Reductions and Operating Margin

By Jonathan Bees  
   July 13, 2017

Ninety-one percent of surveyed healthcare leaders expect to average a positive margin over the next three years.

Nearly half (49%) of survey respondents indicate that cost reduction efforts yielded year-over-year savings of 5% or more for their most recent fiscal year—this result is identical to last year’s survey (49%), according to the June 2017 HealthLeaders Media Cost and Revenue Strategies: The Need for Transparency and Understanding True Costs survey. At the upper end of the scale, 12% of respondents had cost reductions of 11% or more. Both results indicate that there is room for further savings from cost reduction programs.

Looking to the future, 57% of respondents expect average annual cost reductions of 5% or more over the next three years, up eight percentage points over last year’s survey. At the upper end of the range, 13% of respondents are expecting average annual cost reductions of 11% or more. Respondents remain optimistic about their ability to bend the cost curve on a healthcare system long cited for its inefficiency.

The survey also explored provider operating margins. Twenty-one percent of respondents estimate a negative operating margin for the most recent fiscal year, and 78% estimate a positive margin. These results are comparable to last year’s survey in which 17% estimated a negative operating margin and 78% estimated a positive margin. Only one percent of respondents report flat results for this year's survey.

The outlook for the next three years shows some improvement, with only 7% of respondents saying that they expect to average an annual negative operating margin over the next three years, and 91% expect to average a positive margin during that same time period. These results are comparable to last year’s survey in which 7% expected to average a negative operating margin and 87% projected positive annual margins over the next three years.

Jonathan Bees is a research analyst for HealthLeaders.


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