The gap between strong hospitals and struggling systems is growing

Hospitals are seeing some margin stability, but the gap between financially strong systems and those that are struggling continues to grow, Kaufman Hall says in its latest report. (Image credit: ©Ekapolsira - stock.adobe.com)

While many hospitals are in a better place financially than they were a year ago, plenty of systems continue to face difficulties.

Health systems are seeing more stable margins, but many underperformed in June, according to the National Hospital Flash Report released Monday by Kaufman Hall, a healthcare consulting firm.

More disturbingly, the firm sees a growing gap between hospitals that are financially strong and those that are struggling.

Healthcare leaders need to make choices about focusing on areas of growth, such as outpatient care, says Erik Swanson, senior vice president of data and analytics with Kaufman Hall.

“This ‘new normal’ is an incredibly challenging environment for hospitals,” Swanson said in a statement. “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.”

Inpatient revenue was flat in June compared to May, while outpatient revenue rose 2% over the previous month, the report stated. The figures underscore the continued shift of patients receiving more care on an outpatient basis.

Hospitals saw a drop in labor expenses, including an 8% decrease in full-time equivalent (FTE) costs per adjusted occupied beds in June, compared to May. Kaufman Hall suggests the decline could indicate staff turnover, or hospitals reducing their workforces to stay afloat.

The median year-to-date operating margin index for hospitals was 1.4% in June, but Kaufman Hall suggests accounting adjustments many systems made at the close of the fiscal year contributed to a bump in their performance.

Hospitals witnessed increases in bad debt and charity care in June, rising 3% compared to May, Kaufman Hall said. Previously, the firm said increases in charity care could be tied to the rising number of Americans losing Medicaid coverage as states reconsider eligibility.

Hospitals continue to struggle with inflation, as they pay higher prices for drugs and other supplies. Non-labor expenses rose 4% from May to June, according to the report.

Health systems saw a 2% drop in the average length of stay in June, compared to May, while operating room minutes remained flat in June. Emergency department visits dipped 1% from May to June.

Moving forward, hospitals should look to build stronger relationships with physician groups that can refer patients, Kaufman Hall suggests. Health systems also need to improve transitions to post-acute facilities.

Hospitals are going to have to expect thin margins for the foreseeable future, Kaufman Hall and other analysts have said. Kaufman Hall has said razor-thin margins may be the new normal.

Fitch Ratings has also projected that hospitals and health systems are a year away from returning to some kind of normalcy. Hospitals can expect narrow margins for the rest of 2023 and into 2024, and Fitch is also seeing a widening gap between systems with stronger and weaker credit profiles.

The National Hospital Flash Report utilizes data from more than 1,300 health systems from Syntellis Performance Solutions.

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