Hospitals beginning to show signs of improved performance

After months of sobering financial returns, hospitals are finding some reasons for optimism.

Hospitals and health systems are seeing more patients, particularly in outpatient services, according to Kaufman Hall's latest report. (Image credit: ©Ekapolsira - stock.adobe.com)

Hospitals and health systems enjoyed some improved financial performance in May, according to Kaufman Hall, a healthcare consulting company. Hospitals improved in several areas, according to the latest National Hospital Flash Report, which was released Tuesday morning.

To be clear, the report doesn’t suggest that hospitals’ financial worries are simply bad memories.

Operating margins remain below pre-pandemic levels. But there are some encouraging signs that health systems are seeing more stability, which is welcome news after 2022, the worst year for hospitals financially in the COVID-19 pandemic.

Perhaps most importantly, hospital patients are demonstrating increased comfort with inpatient care, said Erik Swanson, senior vice president of data and analytics with Kaufman Hall.

“Hospitals may no longer be experiencing the post-pandemic effect of pent-up demand for inpatient services, but patients are showing us they are becoming more comfortable with receiving care in this setting,” Swanson said in a statement. “Hospitals can expect a ‘new normal’ of slowly increasing margins that may never return to pre-pandemic levels without reevaluating how and where care is being delivered.”

Health systems have been advised that they should expect slender margins for the foreseeable future, as they continue to deal with higher costs, labor shortages and supply chain difficulties.

Hospitals did see an uptick in operating margins with a return to positive territory, although they remain modest. In May, the median year-to-date operating margin index for hospitals was 0.3%, a slight bump from 0.1% in April and March.

Even as more patients are seeming to be more comfortable going to the hospital, health systems are relying more and more on outpatient revenue, which is growing at a faster pace than inpatient revenue. Net operating revenue per calendar day in May 2023 was 9% higher than it was a year ago. Year over year, outpatient revenue rose 14% in May, while inpatient revenue jumped 7%.

“Now that hospital finances are showing signs of stabilization, it’s an opportune time for executives to reevaluate their longer-term business strategy,” Swanson said in a statement. “The continuing shift in patient demand from inpatient to outpatient services is particularly important and will inform business decisions for years to come.”

Hospitals are also beginning to see some relief in labor costs, even if they remain well above pre-pandemic levels. Labor costs per adjusted discharge were 9% lower in May 2023, compared to May 2022, according to the report.

Operating room minutes rose 5% from April to May, and were 5% higher than in May 2022. Emergency department visits rose 5% from April to May.

Health systems are waiting to see the additional impact of states reducing the number of people covered by Medicaid.

About 1.5 million people have lost Medicaid coverage, according to an Associated Press analysis. Hospitals saw an uptick in charity care in April, a possible result of some losing Medicaid coverage, Kaufman Hall said last month.

The Kaufman Hall report utilizes data from more than 1,300 hospitals from Syntellis Performance Solutions.