Despite increased provider productivity and revenues, inflation continues to burden hospitals and health systems
Hospital finances improved slightly in March, but inflation and other economics pressures continue to make for a challenging environment, according to a report from Kaufman Hall.
Hospital margins are razor thin, but stable, according to the report. The median year-to-date operating margin index for hospitals was relatively flat in March, showing slight improvement from February. While margins continue to stabilize, they remain below pre-pandemic levels—leaving hospitals in a vulnerable position should a recession or new public health emergency arise.
Margins have remained thin despite the rise in physician and provider productivity as patients continued to seek care that was put off during the pandemic. The report notes that outpatient volumes remained strong in March, while average length of stay decreased by 4%, hinting at a reduction in patient acuity. Hospitals are also dealing with challenges of an ongoing bottleneck of discharging patients to post-acute facilities and workforce shortages still hamper the ability to treat admitted patients.
“While it appears that hospital finances are stabilizing, that doesn’t mean that all is well,” said Erik Swanson, senior vice president of Data and Analytics with Kaufman Hall, in a statement. “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 continue to outpace revenue growth, and health systems are feeling the strain of inflation, particularly when it comes to labor and materials. Non-labor expenses including drug and supply costs rose by 6% from February, according to the report. The total direct expense per provider full-time equivalent (FTE) rose to $611,317, a 17% increase compared to Q1 2022. Meanwhile, net patient revenue per provider FTE was $357,507 in Q1 2023.
Despite increased productivity and revenues in the first quarter of 2023, there was a 12% year-over-year increase in median investment/subsidy per provider FTE to $236,842—representing an increase twice the rate of inflation. Kaufman Hall experts say this is likely due to the increased costs of materials and labor.
“As labor pressures continue, we’re seeing more and more reliance on advanced practice providers—including nurse practitioners and physician associates,” said Matthew Bates, managing director and Physician Enterprise service line lead with Kaufman Hall. “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.”
The National Hospital Flash Report draws on data from more than 900 hospitals from Syntellis Performance Solutions. The Physician Flash Report draws on data based on more than 200,000 employed providers, also from Syntellis.